Dollar Steady Ahead of US Inflation Data

Dollar Steady Ahead of US Inflation Data

The euro was little changed at $1.1407, unable to draw much lift even as Germany's 10-year bund yield climbed back above the 0.50 percent threshold overnight on a report that the European Central Bank is likely to signal in September that its asset purchase programme will be gradually wound down next year.

Up until this week, Fed officials had translated the recent moderation in prices as transitory but following Yellen's dovish tilt on Wednesday and today's weak numbers, policy makers will now have to reconsider whether additional rate hikes are warranted this year. Core prices had been expected to rise by 0.2%.

The falling price of gasoline also helped hold down United States retail sales, which contracted for the second straight month in June, while manufacturing output rose slightly but slowed in the second quarter, according to two separate reports on Friday. Food and beverage stores were down 0.4%, department stores were down 0.7% and restaurant sales were down 0.6%.

Prices for all items less food and energy, the "core CPI", increased 0.1% in June, the same as in May.

The year-on-year CPI has been softening steadily since February, when it hit 2.7 percent. Retail sales of gasoline were down 1.3%, based largely on lower prices.

"The June inflation and retail sales don't matter for the December decision", he said.

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After the report, which was released simultaneously with retail sales for the same month, the dollar weakened. For the April-June period, sales were up 3.8 per cent over the same quarter a year ago.

"There was widespread price weakness in components stretching far beyond cell phone plans and prescription drugs", he said in a research note, pointing to the main factors Yellen has cited.

The soft domestic demand could also temper expectations of strong acceleration in economic growth in the second quarter. "The weak trajectory of consumer spending at the end of second quarter adds some challenges to the third-quarter consumption outlook, which reinforces our view that growth will step down modestly in the current quarter", said Michael Feroli, an economist at JPMorgan in NY.

The University of MI released a report on Friday showing a notable deterioration in US consumer sentiment in the month of July. It has declined from a high of 98.5 in January.

Against the backdrop of this, market watchers will be trying to assess whether the Federal Reserve will continue its rate-hike agenda amid an overall strengthening U.S. economy. June marked the third consecutive 0.1% gain on the core rate.