Housing data key for dollar

High inflation data will tend to support the US currency, but the effect will be limited unless there is also evidence of a recovery in the housing data  

Despite some stabilisation around 1.3550, the dollar struggled to make any significant headway against the Euro on Monday. The dollar was holding little changed in early Europe on Tuesday with a marginally stronger US currency as there was caution ahead of the key US data later in the day.

US retail sales rose 0.7% in March while there was a 0.8% underlying increase for the month. These figures were close to expectations, although the February data was revised up with an underlying increase of 0.4% from -0.1% previously and there was a recovery in building-related sales. Markets will pay close attention to the latest housing figures on Tuesday and only a strong set of data would alleviate underlying negative sentiment towards the economy.

The US consumer inflation data will also be important on Tuesday as the markets continue to assess US inflation trends. A firm consumer inflation figure would make it more difficult for the Federal Reserve to cut interest rates and would provide some dollar support. The US currency will not, however, secure strong support if there is a combination of high inflation and weak growth as there would be further concerns over the risk of stagflation in the economy.