US Treasury yields dropped following disappointing US data releases, which weighed on the dollar. The euro was one of the best performers.
US retail sales fell short of analysts’ estimates and consumer price growth slowed in April. The weak data raised concerns that the Fed may not stick to its 3-rate hikes this year, especially since today’s data come after weak first quarter growth. Fed fund futures are now showing a less than 50% probability of the Fed raising rates two more times this year.
Retail sales rose 0.4% month-on-month in April versus 0.6% expected. The March figure was revised higher to show a 0.1% gain from a previously reported 0.2% decline. The consumer-price index (CPI) advanced a seasonally adjusted 0.2% month-on-month in April from the prior month, as expected. Core CPI (which excluded food and energy), rose just 0.1% from March versus 0.2% anticipated. Headline consumer prices rose 2.2% from a year earlier in April, compared to the previous 2.4% gain, and missed estimates of 2.3%. Inflation is closely watched by the Fed, who has a 2% target rate. The uptick in the real average hourly earnings was shrugged off by the markets.
The dollar tumbled on the overall disappointing data and reached 113.22 yen while the euro jumped to $1.0925. The softer US inflation and retail sales data pushed back US Treasury yields. The odds of a 25-basis point rate hike by the June 14 Fed meeting fell to 74% today from about 83% on Thursday.
Commodity currencies benefited from the broadly weaker greenback, which helped the aussie briefly bounce to $0.7420. The dollar / loonie fell to $1.3665 after the data before recovering back above $1.3700. Gold rallied above the key $1230 an ounce level.
The dollar’s tumble was cushioned by a report showing US consumer sentiment improved in early May. The preliminary University of Michigan index rose to 97.7 from April’s final reading of 97.0 and beat the forecast of a 97.0 reading.
Aside from US data, investors also had their focus on Chicago Fed President Charles Evans who spoke at a conference in Dublin today. Evans said he was ok with only one more rate hike this year if there were uncertainties in the inflation outlook. He would prefer to see more inflation before hiking again. Evans also said the Fed could soon start trimming its 4.5 trillion-dollar balance sheet to bring it down to normal size gradually over 3 to 4 years.
Philadelphia Fed President Patrick Harker is also due to speak today on the US economic outlook at Drexel University in Philadelphia.