EUR/USD holds firm above 1.1800 as strong US Retail Sales limits Dollar downside

• EUR/USD holds firm above 1.1800, easing slightly after retesting year-to-date high at 1.182.
• US Retail Sales rose 0.6% MoM in August, sharply beating expectations of a 0.2% increase.
• Markets price in a 25 bps Fed cut, with the CME Fedwatch tool showing a 95% probability ahead of Wednesday's decision.

The Euro (EUR) came under mild pressure against the US Dollar (USD) during the American session on Tuesday, as upbeat US economic data tempers risk appetite and lifts the Greenback modestly off recent lows.

At the time of writing, the EUR/USD pair is trading around 1.1810, easing slightly after retesting its year-to-date high near 1.1821 earlier in the European session. Despite the pullback, the pair remains up nearly 0.40% on the day, underpinned by persistent USD softness ahead of the Federal Reserve's (Fed) highly anticipated monetary policy decision on Wednesday.

The latest US Retail Sales report showed stronger-than-expected consumer spending in August, easing recession fears and reinforcing the resilience of the American consumer despite tighter credit conditions and lingering inflationary pressures.

According to the US Census Bureau, Retail Sales rose 0.6% MoM in August, beating the market consensus of a 0.2% increase. July's reading was also revised upward to 0.6% from the initially reported 0.5%, underscoring firm consumption momentum entering the third quarter.

More impressively, Retail Sales excluding Autos jumped 0.7% on the month, well above the expected 0.4%, while the critical Retail Control Group, which feeds directly into GDP calculations, also advanced 0.7%, topping forecasts of 0.4%. On a yearly basis, total Retail and Food Services Sales rose 5.0%, up from July's upwardly revised 4.1% pace.

The data came at a pivotal time, with markets fully pricing in a 25-basis-point rate cut. While the central bank is widely expected to initiate an easing cycle, today's figures may temper expectations for a more aggressive rate-cut trajectory. The Fed will also release its updated Summary of Economic Projections and dot plot, which could provide greater clarity on the path forward.