The dollar drifted mostly higher on Thursday after a strong US retail sales report suggested the US economy remains on a solid footing and cemented the view that interest rates will continue to rise. A surprisingly strong 1.7 percent surge in retail sales last month points to an economy supported by strong consumer spending and suggests the Federal Reserve will stick to its policy of steady rate increases.
The June reading of consumer price inflation, however, was a bit below economists' forecasts, which dealers might have thought would ease pressure on the Fed to accelerate its campaign of interest rate rises.
After a period of choppy trading, it was the strong cyclical US growth story that won out and helped bid up the greenback.
"Expectations were that this (set of data) would be pretty dollar-supportive, and that was the case," said Robert Sinche, head of global currency strategy at Bank of America in New York.
In late trade, the euro traded at $1.2081 down slightly from late Wednesday, while sterling was down 0.5 percent at $1.7557.
The dollar was up 0.4 percent against the yen at 112.29 and firmed slightly against the Swiss franc to 1.2901 francs.
US retail sales rose 1.7 percent in June, led by spending on cars, gasoline and clothes. Excluding cars and parts, sales grew 0.7 percent. Analysts had expected a 1.0 percent rise in the headline number and a 0.6 percent increase on sales excluding autos.
The consumer price index held steady in June as falling energy prices offset gains in the cost of food and other items. Core CPI, excluding food and energy prices, edged up 0.1 percent for a second straight month.
Both the headline and core CPI numbers were below forecasts.
A higher CPI number would have fuelled expectations of accelerated interest rate rises by the Fed, enhancing the appeal of some dollar-denominated assets.
"The data is mixed for the dollar. Lower inflation means the Fed can be less aggressive if it chooses, and that's negative for the dollar. But retail sales show the economy is on a sound footing and that's positive for the dollar," said Greg Anderson, senior currency strategist at ABN Amro in Chicago.
A good deal of currency trading on Thursday was driven by activity in the euro/yen cross, analysts said. At various points in the session, that pair's rise to almost 136.00 yen lifted euro/dollar and dollar/yen higher.
Anderson at ABN Amro agreed. He expects the major currencies to be stuck in a range for the rest of the summer, with the euro trading between $1.18 and $1.23, and the dollar between 109 and 113 yen.
US producer prices data are due on Friday, with economists forecasting a 0.4 percent increase.
The University of Michigan consumer sentiment index is also scheduled for release and analysts are forecasting a preliminary reading 95.0 for July.
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