Dollar, bond yields dip on inflation data as stocks soar

Dollar, bond yields dip on inflation data as stocks soar”

The dollar weakened and government bond yields fell to multi-week lows on Friday after a benign reading of US inflation in June and soft retail demand raised doubts the Federal Reserve would increase interest rates later this year.

Bond prices rallied after the Labor Department said the consumer-price index was unchanged in June from the prior month. Core CPI, the measure that excludes volatile energy and food products, remained steady at 0.1% on a monthly basis, falling short of the forecasted 0.2%.

The kiwi was battered early in the week by disappointing domestic data but gained sharply toward the end of the week amid speculation the Reserve Bank may be more inclined to hike interest rates in the face of increases and bullish talk from other central banks including the Bank of Canada.

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 Friday. The US was expected to report a small rise of 0.1% in retail sales and 0.3% in the retail control group.

Amid the bullish backdrop, investors will likely be parsing the latest U.S. inflation data, released last night, for more signs as to how the Fed will proceed.

The benchmark 10-year U.S. Treasury note US10YT=RR rose 6/32 in price to yield 2.3248 percent.

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The increase in core prices reflected 0.2% growth in shelter prices as well as higher prices for medical care, motor vehicle insurance, education, and personal care. Other data on Friday showed industrial production picked up in June amid a rise in output at mines and factories.

USA interest rates futures rose as traders pared their viewthe Fed would increase rates again in 2017.

The euro vaulted to a 14-month high of $1.14895 in Asian trade. The yen surged by 0.58%, with dollar/yen trading at 112.60. Matters appeared to kick-off even before Chair Yellen's opening statement was read at 10:00 AM on Wednesday, as the Monetary Policy Report to Congress that was released at 8:30 AM seemed to catch trader's attention as the final paragraph of the report reiterated the "Fed Put" that has helped to keep equity prices elevated. Inflation has climbed just 1.6 percent from a year ago. During her congressional testimony this week, Fed Chairwoman Janet Yellen repeated her belief that temporary factors were keeping a lid on consumer prices, but said she would watch them "very closely".

Given the present outlook, we expect the Fed will likely raise rates another 25 bps this year as well as begin the process of slowly unwinding its balance sheet sometime in the fourth quarter. Electricity costs slid 0.6 percent. It was the yield's largest weekly decline since the week ended June 2.

USA 10-year yield fell to 2.303 percent, from 2.348 percent late on Thursday. The contract gained 59 cents, or 1.3 percent, to settle at $46.08 per barrel on Thursday.

The most-active US gold futures for August delivery futures settled up $10.20, or 0.84 percent, at $1,227.50 per ounce.

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