Retail Sales Prop the Dollar

The greenback extended its gains versus the majors, rallying above the 108-level against the yen and 1.5380 versus the euro. The main catalyst for today’s move was a larger than expected improvement in May retail sales, with the headline reading improving by 1.0%, exceeding calls for a 0.5% increase from a 0.2% decline in April. The excluding autos retail sales jumped to 1.2%, versus estimates for an improvement to 0.7% from 0.5%. Weekly jobless claims crept higher to 384k, versus 357k in the previous week while April business inventories improved to 0.5% from 0.1% a month earlier.

With market sentiment anticipating the FOMC to shift to a tightening bias near the end of the year, traders will continue to closely scrutinize incoming US economic data. Philadelphia Fed President Charles Plosser echoed a similar tone to recent Fed comments, saying the FOMC needs to take preventive measures to ensure that “inflation does not get out of control”. Plosser said the current risk to inflation is serious and the Fed needs to act preemptively to contain it.

Economic data due out on Friday will provide additional clues on how quickly the Fed may need to move to contain inflationary pressures. The May CPI reading is expected to edge up to 0.5% from 0.2% a month earlier, and hold steady at 3.9% from the previous year. Core CPI is forecasted to rise to 0.2% from 0.1% in April and remain unchanged at 2.3% from a year earlier. Traders will also focus on the June University of Michigan consumer sentiment survey, which is expected to slip further to 59.5, versus 59.8 in May – which would be a fresh 18-year low.