The first good news came with the release of the retail sales, which increased by 1.2% against the forecasted 0.5%. Core retail sales (excluding sales of automobiles) were higher by 1.8% while analysts expected a 0.6% gain.

Prices of Producers (PPI) in the US increased in November by 3.2% on monthly basis (forecast was 1.5%). PPI Core (excludes food and energy products) went up by 0.4% against the forecasted 0.2%.

The weekly report from the US labor market was not so important as the inflation data. The US Labor Department informed that unemployment claims (individuals who filed for unemployment insurance for the first time) were at 333K (analysts expected 335K).

The news were what the greenback was waiting for. Higher than expected level of sales and higher PPI inflation can be a sign that tomorrow’s CPI will be anxiously awaited by investors. Higher inflation in the US will certainly strengthen the American dollar, giving the Fed a problem to think about. From on side we have the fear of recession; on the other side increasing consumption causing higher prices. What will the Fed do? Another interest rate cut will help even more the deteriorating economy but can cause inflation to speed up. Leaving interest rates at their current level (for now, an interest rate hike seems completely illogical) can slow down inflation but investors will probably argue about the weak economy. The current situation will certainly cause a headache to the US central bank. The next interest rate decision will not be easy.

Adam Narczewski