The dollar weakened to lows around 1.4725 against the Euro on Wednesday, but managed to strengthen back towards 1.4655 later in US trade. The Euro was dragged down by late selling against the yen, but the US currency was still finding it difficult to retain gains as sentiment remained weak and the dollar weakened back towards 1.47 in early Europe on Thursday before settling close to 1.4670.

US retail sales rose 0.2% in October while underlying sales also rose 0.2% over the month and there was a small upward revision to the September figures. The data was certainly not strong, but there will be some relief that the data was not worse given unease over spending trends. Producer prices rose 0.1% over the month with underlying prices unchanged and this will ease fears over a sharp rise in wholesale price inflation.

This combination will ease immediate fears that the US economy is heading for stagflation. Sentiment will remain very fragile and an elevated reading for consumer prices on Thursday would revive underlying inflation fears which would create major policy difficulties for the Federal Reserve.