Dollar Falls After US Inflation Unchanged and Retail Sales Fall

U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation that could diminish prospects of a third interest rate increase from the Federal Reserve this year.

The soft domestic demand could also temper expectations of strong acceleration in economic growth in the second quarter.

The Labor Department said on Friday that the unchanged reading in its Consumer Price Index came as the cost of gasoline and mobile phone services declined further. The CPI’s drop of 0.1 percent in May and the lack of a rebound in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory.

Policymakers are confronted with benign inflation and a tight a labor market as they weigh a third rate hike and announcing plans to start reducing the central bank’s $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities.



In the 12 months through June, the CPI increased 1.6 percent – the smallest gain since October 2016 – after rising 1.9 percent in May. The year-on-year CPI has been softening steadily since February, when it hit 2.7 percent.

Economists had forecast the CPI edging up 0.1 percent last month and climbing 1.7 percent from a year ago.

The so-called core CPI, which strips out food and energy

costs, edged up 0.1 percent in June, rising by the same margin for three straight months. The core CPI increased 1.7 percent year-on-year after a similar gain in May.

The Fed has a 2 percent inflation target and tracks a measure which is currently at 1.4 percent.

The dollar extended losses against a basket of currencies on the data while prices for U.S. government bonds rose.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza