US Dollar Recovers On Building Inflation, Sales Data

[DailyFx]

The US dollar advanced against most of the major currencies as fresh economic data led the markets to reduce expectations of further rate cuts by the Federal Reserve, but fell to a two month low against the Canadian dollar as oil prices peaked just shy of $127 a barrel. As a result, the low yielding Swiss franc and Yen took the biggest plunge against the greenback, with the New Zealand and Australian dollar following behind. Against the European currencies, the US dollar regained its footing as it rose against both the British Pound and Euro. The British Pound continued to tally up losses as it fell to 1.946, while the Euro inched lower to trade at 1.547.


On the economic front, Advanced Retail Sales for the US fell in line with expectations as it dropped to -0.2 percent from 0.2 percent, while Retail Sales Less Autos topped estimates as it rose to 0.5 percent – helping to ease downside growth risks. Amid the positive data, Fed Chairman Bernanke held a downgraded view of the economy as he stated the financial markets to be ‘far from normal’, and said that the Fed will increase borrowing to the financial sector to $150B from $100 a month.
The stock markets turned sour as Chairman Bernanke highlighted the downside risks in the financial sector, and pushed the markets into negative territory. As a result, the DJIA fell 44.13 points to 12,832.18 points, with HP and JP Morgan Chase topping the losers. Among the broader indices, the S&P500 shaved 0.54 points to hold off at 1,403.04 points, with 195 stocks falling to a new 52 week low.
Demands for US Treasuries wavered as many investors left the safe have of risk free bonds in search of higher returns. As a result, the benchmark 10-Year yield rose to 3.921 percent from 3.797, while the 2-Year yield jumped to 2.482 percent from 2.321.
Looking ahead, the MBA Mortgage Application will kick off the morning at 11:00 GMT, and will be followed by the Consumer Price index at 12:30 GMT. We expect the CPI data to be the main event risk for tomorrow, and forecast core inflation to hold at 2.4 percent, while we expect the headline reading to stay at 4.0 percent.