US Dollar Remains Unchanged Ahead of Critical Consumer Price Data, Bernanke Speech

The US Dollar continued near multi-decade lows on a trade-weighted basis, with the morning?s Producer Price Index and Treasury Inflow Capital reports doing little to boost the currency. A rise in bond yields and fresh record-highs in the Dow Jones Industrial Average lent some later support, with the dollar trading nearly 50 points higher against the Japanese Yen. Yet traders appeared largely hesitant ahead of a slew of key event risk schedule for tomorrow morning. US officials will report on June Consumer Price Index data at 08:30 EST (12:30 GMT), while Fed Governor Ben Bernanke is due to speak on monetary policy to the US House of Representatives at 10:00 EST (14:00 GMT).

The Euro remained largely unchanged on the day at $1.3783, while stronger-than-expected inflation numbers sent the British Pound to fresh 26-year highs at $2.0455 through time of writing. Traders sent the Japanese Yen lower for the second consecutive day, with the dollar adding ¥0.48 to ¥122.36.
Morning economic reports showed that producer prices fell through the month of June, with the headline index losing 0.2 percent despite forecasts of a 0.2 percent gain. Excluding Food and Energy costs, however, costs actually gained at their fastest pace since February. At 1.8 percent on a year-over-year basis, the Core PPI figure leaves some doubts as to whether inflation will moderate through the medium term. This in turn leaves scope for continued Fed hawkishness on interest rates and suggests that tomorrow?s Consumer Price Index report will show higher-than-forecast inflation. The implications were nonetheless not enough to force a sustained US dollar bounce, leaving traders to react off of later Net Long Term Treasury Inflow Capital Flows report.
Net foreign investment in US securities reached a record high through May, calming fears that global diversification efforts will see significantly fewer inflows to domestic markets. Indeed, the balance showed a surplus of $126.1B in capital movements?more than double the same-month trade balance deficit at $60.0B. The vast majority came from fresh net Private interest, which surged from $72.1B in April to a whopping $152.0B in May. Official interest subsequently dropped, however, falling below February’s $12.1B disappointment at $11.5B. Such a result is consistent with the theory that major central banks are divesting themselves of US-dollar denominated assets, but it serves to note that Private interest is more than making up for the fact. It will be important to see if the private sector can sustain such demand, but this result temporarily proves bullish for the downtrodden US dollar.
Domestic equity markets forged new highs through the New York morning, but later consolidation saw major indices largely unchanged through time of writing. The Dow Jones Industrial Average breached the psychologically significant 14,000 mark for the first time in its history, hitting peaks of 14,011.79 before a swift retrace. It now trades a lesser 21.79 points higher to 13,392.77, while the broader S&P 500 Index is slightly lower at 1.11 points to 1,548.41. The tech-heavy NASDAQ Composite was the best performer of the three majors, 6.70 points improved to 2,704.00.
US Treasuries remained relatively rangebound ahead of tomorrow?s key Consumer Price Index numbers. A 7/32 points decline in the benchmark 10-year Note sent yields 3 basis points higher to 5.07 percent. It will be very important to view bond traders? reactions to tomorrow?s economic data. Undoubtedly the more “pure” interest rate play, fixed income markets can often serve as a leading indicator to reactions in the US dollar.