US CPI & Retail Sales to Push USD

Posted by James Hughes -
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The next few days see the release of two key pieces of economic data crucial for the USD – CPI inflation data and the January retail sales. Both of these figures are incredibly important in getting a gauge on the state of the US economy. In recent months the economy has been booming, however, somewhat artificially.

Throughout 2019 the Fed had been cutting rates under pressure from President Trump (even though the Fed is supposedly independent). This has led to some huge gains in stock markets and painting the picture of a strong US economy. GDP growth has been positive, and the US jobs report is showing almost full employment. However, the key to the overall strength in spending has been from inflation under control at just above 2%. More importantly, that average earnings are outstripping inflation reading.

This month’s figure, out on Wednesday afternoon, might see a small dip in the inflation rate back to 2.2% from December’s 2.3%.

The consumer price index (CPI) could add 0.2% in January as it did in December. Annual inflation will be 2.4% in January following 2.3% in December. Core inflation should rise by 0.2% in January after December’s 0.1% gain and be 2.2% from 2.3%.

Retail Sales and USD Chart Action

Friday also sees the release of the January Retail Sales data. These figures are important to the markets. They give a full barometer of public behaviour in relation to the economy.

The retail sales number shows not only the increase or decrease in the sale of goods and services in the previous month, but it also indicates behavioural patterns. It shows exactly what the general public are spending their hard-earned money on. Expectations for January’s reading are of a fall in the increase in sales to 0.3% from 0.5% in December (which is generally the most important month due to the holiday trading).

A miss in both of these key pieces of economic data could well have a material effect on the US dollar as we head into the weekend. A miss in expectations would have the Fed yet again thinking about what the next few months will hold. Fed interest rate predictions still expect no move in rates at the next meeting, but the market volatility around coronavirus, as well as weaker data, could well cause a rethink.

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