Consumption and spending

According to Dolan, the second group of key indicators is “hard data” such as retail sales and durable goods, both of which are related to private consumption. “[Private consumption] is what ultimately will determine the direction of the dollar,” he says. “You’re not going to buy a big-ticket item such as a refrigerator when times are tough. It’s a real-time indicator.”

Lots of U.S. retail activity (read shopping) firms up interest rates, which is bullish for the dollar. However, an overly robust retail sales report can cause trouble for the dollar because many of the goods U.S. consumers buy are imported. A jump in imports increases demand for non-dollar currencies to pay for all of the imports, which can hurt the dollar.

Durable goods orders are important because they provide a look at what products will be produced in the months ahead. The actual goods are products with a life expectancy of at least three years. Ajump in orders suggests employees and factories will be busy, while a decline suggests assembly lines will slow and plants may close, which is bad for the economy. Another indicator that falls into the “real time” private consumption category is the personal income and spending report, released by the Bureau of Economic Analysis. It records the income Americans receive and how much they spend and save. A vigorous increase in income and spending is good for the dollar as high consumer demand encourages growth and places upward pressure on interest rates, but too much spending can trigger inflationary worries. “Reports that pertain to consumer spending are important to the currency markets right now,” says Beuzelin. “[This data] is very important –– if it is true the U.S. economy is moving out of its soft patch. The Fed is optimistic [about the economy] and the FX market is skeptical of that optimism, so participants pay more attention to consumer reports.”