Inflation concerns should provide some underlying dollar support, but it will be difficult to break ranges

The Euro failed to hold above the 1.44 level against the dollar on Friday and consolidated around 1.4360 in New York. Trading volumes declined ahead of the weekend and the US currency held generally firm even though there was no challenge on resistance close to 1.43. The Euro strengthened marginally to 1.4380 on Monday in very light trading volumes.

There was a bigger than expected increase in US personal spending for November with the 1.1% monthly increase reinforcing the message of the retail sales data reported earlier in December. The University of Michigan consumer confidence index edged stronger to 75.5 in December from 74.5 previously and near-term spending evidence will remain under close scrutiny.

Markets are also maintaining a focus on inflation indicators following the higher than expected US consumer inflation data earlier in the December. The core monthly PCE inflation data was in line with expectations at 0.2%. The annual rate, however, increased to 2.2% compared with expectations of a 2.0% figure. The Fed has an unofficial 2.0% ceiling and the increase above this level will certainly create some unease within the Federal Reserve. Following the Friday spending and inflation data, expectations of a January interest rate cut edged down slightly which will provide some further near-term dollar support.