Dollar Declines After CPI and Retail Sales Data Disappointment

  • Friday drop halves dollar’s weekly gain; euro retakes 1.0900
  • Treasury yields near lows for the week as rate-hike bets pared

Equity Week in Review: Retail, Valuations and Earnings

The dollar fell for a third day after April U.S. retail sales and consumer price data missed estimates, paring its first weekly gain since the start of last month.

The greenback shed modest early gains to trade lower by 0.3 percent. Friday’s dollar drop breached technical support at the 200-DMA for the Bloomberg dollar index, opening the risk of further declines. The dollar fell versus most of its G-10 peers, losing the most against the Swiss franc, which saw broad gains late in the European session.

  • USD/CHF fell as much as 0.9% to below 1.0000, its steepest decline in three weeks, as the CHF advanced vs all of its G-10 peers. CHF gain came amid very muted flows, appeared to be position-driven rather than headline-driven, a trader in London said; position unwinds likely due to inability of EUR/CHF to add gains after a report that the ECB could begin signaling a policy shift around mid-year caught players wrong-footed, the trader said
  • EUR/USD rose to a fresh session high at 1.0934 following the data and remained close by after eclipsing the overnight high at 1.0878. Offers to sell EUR are stacked from 1.0925 to 1.0950, the high of a range that prevailed in the run-up to the French presidential election. The euro is expected to find further offers around 1.1000 and likely near the Monday high at 1.1023 that was seen in Asian trading as the French election outcome became clear
  • ECB’s Praet and Angeloni speak on Monday; traders will watch to see if there is any pushback from the ECB officials to the report on policy signaling. ECB’s Constancio reiterated Thursday that the bank’s policy path is set until year-end though signaling of future steps could begin in the fall
  • USD/JPY is trading ~113.43 after reaching a session low of 113.20. The USD was undercut by a decline in Treasury yields that came as traders pared back bets for a June rate hike after the CPI miss. Stop-loss sell orders were triggered below 113.50, said a trader in London familiar with the transactions who asked not to be identified because not authorized to speak publicly
  • Traders parsed remarks from Fed officials to see whether Friday’s economic reports may have caused a shift in sentiment amid still-high market expectations for a June rate rise. Chicago Fed President Charles Evans said that his view is that downside risks to inflation “still predominate,” though the U.S. is probably at full employment. Philadelphia Fed President Patrick Harker, also a voter this year on the FOMC, said he sees “very little slack” left in the U.S. labor market
  • April retail sales rose 0.4% overall vs estimates for a gain of 0.6% and with an upward revision to the prior month offsetting the miss. At the same time, April CPI rose 0.2% overall, matching estimates, though the ex-food and energy component rose only 0.1% vs estimates for a gain of 0.2%. The dollar was little moved by UofMich sentiment at 97.7 vs est. 97.0
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