Following the retail sales data, an elevated reading for consumer inflation would support the US currency at least in the short term. Confidence will build if the dollar resists a move back through 1.4520
Stronger than expected US data pushed the US currency to highs around 1.4580 on Thursday with the dollar securing further gains on Friday to test the 1.45 level.
The US retail sales data was significantly stronger than expected with a headline 1.2% increase for November while there was a 1.8% underlying increase. Higher gasoline sales inflated the figure, but there was still a solid underlying increase. Sales are likely to be have been inflated by retailer discounting and there is a risk that sales have effectively been brought forward which will tend to undermine the December data. Nevertheless, the sales data will ease immediate market fears over the consumer sector which will provide some dollar support. Jobless claims edged lower to 337,000 in the latest week from 340,000 previously.
Headline producer prices rose a sharp 3.2% for November, the biggest increase for over 30 years while the underlying figure was held to 0.4%. Following the PPI data, the consumer inflation data will be watched very closely on Friday. An elevated reading, especially for the core data, would raise inflation fears and make it more difficult for the Fed to consider a further cut in interest rates during the first quarter of 2008. The short-term net impact of a higher figure would be dollar positive.