Dollar dips after weak consumer prices data

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WALL STREET: U.S. stocks finished with modest gains on Thursday.

The yield on the benchmark 10-year U.S. Treasury note fell Friday, capping its largest one-week decline in more than a month, as another soft inflation reading boosted expectations that the Federal Reserve will be cautious in raising interest rates.

The report said consumer prices in June were up by 1.6% compared to the same month a year ago, a deceleration from the 1.9% year-over-year increase growth in May. It's premature to reach the judgment that we're not on the path to 2 percent inflation over the next couple of years.

Ian Kernohan, senior economist at Royal London Asset Management, says: "With headline CPI falling and core CPI still below 2%, there is little pressure on the Fed to change their gradual approach to policy tightening and I expect them to keep the Fed funds rate unchanged until December". Retail sales dropped 0.2 percent last month. This fell short of market expectations of a 0.1% increase. Currency markets also were cheered by the government's constructive tone before further Brexit talks with the European Union, which start next week.

The US dollar added 0.08 percent to 1.3746 against the Singapore dollar while the Malaysian ringgit was up 0.01 percent to 4.2908.

The trade-weighted index rose to 78.18 from 77.91 late yesterday. The market is being primarily supported by Yellen's remark that the central bank would only gradually tighten monetary policy, curbing speculation that interest rates would rise a few times this year.

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Friday's data came after testimony before Congress this week from Fed Chairwoman Janet Yellen, which also sent yields lower. While CPI may not be the Fed's preferred measure of inflation, it is released earlier and identifies whether prices are ticking higher or remain subdued. It gained by a similar quantum against the Japanese yen. The currency traded in a range of C$1.2693 to C$1.2747. It hit session high at 0.7828 and made session lows at 0.7711 levels. The pan-European FTSEurofirst 300 index .FTEU3 of leading shares rebounded to rise 0.10 percent and close at 1520.41.

Turning back to the economic data, consumer price inflation fell to a 1.6 percent annual rate from 1.9 percent prior.

The Fed has frequently been overly optimistic about its predictions for rate hikes in the post-recession era. Electricity costs slid 0.6 percent. Waiting too long to remove accommodation could eventually require the Fed to raise rates too rapidly and risk pushing the economy into recession. The Dow futures dropped 5 points or 0.02%, the S&P 500 futures were unchanged, while the Nasdaq 100 futures rose 13 points, or 0.23%. The drop came after the US data raised doubts about USA economic growth and whether the Fed will hike rates again this year. Retail sales rose 2.8 per cent year-on-year in June.

US two-year yields slid as well, down to 1.339 percent, from Thursday's 1.367 percent, after sliding to a three-week trough of 1.323 percent.

The greenback edged down 0.2 percent to 1134.30 against Korean won. The contract finished the week up 1.5 percent, its first gain in six weeks.

Indeed a cursory look at the EUR/USD chart, which has extended its uptrend into the 1.14s recently, supports a continuation higher, which would be commensurate with a weaker Dollar profile. Brent crude, used to price global oils, was flat at $48.42 per barrel in London.

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