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Dollar dips after weak consumer prices data

16 July 2017

The pair finished Thursday's trading at 1.2938.

The unchanged reading followed a drop of 0.1 percent in May, the Labor Department said Friday. That's down sharply from February, when prices rose 2.7 percent from a year earlier. The CPI's drop of 0.1 percent in May and the lack of a rebound last month could trouble Fed officials who have largely viewed a recent moderation in price pressures as temporary.

Core consumer prices crept up by 0.1% for the third consecutive month, while economists had expected core prices to rise by 0.2%. Even excluding for vehicle sales, which have declined recently, retail sales figures still posted a 0.2% drop.

However, manufacturing output was up just 0.2 percent and is up 1.2 percent year-over-year, with capacity well below its peak. Currency markets also were cheered by the government's constructive tone before further Brexit talks with the European Union, which start next week. Interest rate markets are now tipping the first rate hike to come in June 2018 versus the central bank's forecast of September 2019. It has made session high at 1.2754 and lows at 1.2646 levels.

"This cements the weaker trend in the dollar and lower US yields and I think this story has got legs", Franulovich said. The 10 yr yield is down by 5 bps and the 2s/10s spread is narrowing by 2 bps.

Silver prices rose Friday morning and were on track for weekly gains, as the grey metal stabilized from last week's apparent flash crash.

Against the Japanese yen, the dollar was down 0.65% to 112.53 yen, after hitting a near two-week low of 112.28 yen. The greenback is seen challenging support around the 0.75 area. Manufacturing output rose 0.2%.

Turning back to the economic data, consumer price inflation fell to a 1.6 percent annual rate from 1.9 percent prior.

The Fed has frequently been overly optimistic about its predictions for rate hikes in the post-recession era.

Data from the Commerce Department showed that retail sales fell by 0.2% in June after edging down by a revised 0.1% in May.

"If this continues the Fed won't be able to move much further on rates, but they can also take comfort that what may look like an asset bubble isn't fooling firms, banks, or consumers into spending with reckless abandon".

The Dow Jones Industrial Average rose 19.57 points, or 0.09 per cent, to 21,572.66.

USA 10-year yield fell to 2.303 percent, from 2.348 percent late on Thursday.

The report said the producer price index for final demand inched up by 0.1% in June after coming in flat in May. "After Fed chair Yellen's somewhat cautious statement for her testimony suggested that the FOMC could ease back in its tightening if inflation persists, this has added anticipation of today's US CPI numbers", commented Richard Perry in a note this morning.

Spot gold gained 0.96 pct at $1,228.61 per ounce by 3:01 p.m. EDT (1901 GMT) after hitting $1,232.76. The 2 yr yield was at 1.35% before the data and is down 2 bps since.

Other than the yen, the dollar was on the gaining side with the rest of the major currencies including a 0.2 boost to 0.9695 against the Swiss franc. Brent crude, used to price global oils, was flat at $48.42 per barrel in London.

U.S. crude futures rose 1.8 per cent to $45.83 per barrel, extending their recovery from Monday's near two-week low of $43.65.

Dollar dips after weak consumer prices data