A high CPI reading would provide further near-term dollar support on Friday, although the G8 comments over the weekend will also need to be watched very closely.
The US retail sales data was stronger than expected with a 1.0% increase for May after an upwardly-revised 0.4% increase previously while there was also an underlying increase of 1.2% for the month. There was an increase in initial jobless claims to 384,000 in the latest week, although this may have been distorted by the Memorial Day holiday.
The net result of the data was a further increase in Treasury bond yields as 10-year yields rose to above 4.20% while markets continued to price in a series of interest rate increases by the Federal Reserve. The dollar strengthened to highs around 1.5380 against the Euro, but was unable to break resistance around this level and weakened back through 1.54.
Import prices rose by a further 2.3% in May, illustrating the upward pressure on prices. Inflation trends will also be a very important focus on Friday with the monthly consumer prices data. A higher than expected increase in prices would reinforce speculation that the Federal Reserve would be forced to increase interest rates to help combat inflationary pressure and yield spreads would move in the dollar’s favour after a significant narrowing of spreads with the Euro over the past few days.
Concerns over a no vote in Irish referendum helped push the Euro down to 1.5330 later in European trading.