June US retail sales -0.2% vs +0.1% m/m expected

Daily EURUSD

Daily EURUSD

Flat consumer inflation and a surprise drop in June retail sales triggered new doubts that the Federal Reserve will be able to raise interest rates again this year.

The Australian dollar rose 0.4 percent to $0.7758, well on track to post its best weekly performance in four months.

The consumer-price index was unchanged in June from the prior month, the Labor Department said Friday.

Economists polled by Bloomberg expect consumer prices to rise 0.1% month on month in June, and by 0.2% once food and energy prices are excluded.

"The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness", said Richard Franulovich, senior currency strategist at Westpac Banking Corp in NY.

U.S. stock futures are still mixed but the Nasdaq futures are up 13 points (which is better).

Core Retail Sales for June are expected to show a 0.2% increase, up from the May read at -0.3%.

"They (Fed comments) add to our conviction that no further Fed hike should be expected for the rest of the year, which should prove reassuring for markets concerned about excessive tightening risk globally", Mizuho's head of euro rates strategy Peter Chatwell said.

"This cements the weaker trend in the dollar and lower US yields and I think this story has got legs", Franulovich said. He said it was hard to find a "positive way to spin the data". A pickup in US inflation should reinforce views that the Fed would hike interest rates sooner rather than later. While the 2-year note yield TMUBMUSD02Y, -2.05% slipped 3.2 basis points to 1.335%. The yield was at 2.31 percent in late morning trading. Against the Japanese yen, the greenback was down 0.65 percent to 112.53 yen, after hitting a near two-week low of 112.28 yen.

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Stock markets, meanwhile, marched higher.

UK's benchmark FTSE 100 closed down by 0.7 percent, the pan-European FTSEurofirst 300 ended the day down by 0.01 percent, Germany's Dax ended down by 0.2 percent, France's CAC finished the day down by 0.1 percent.

The Dow Jones Industrial Average .DJI rose 84.65 points, or 0.39 percent, to 21,637.74. And the year-over-year core CPI gain was just 1.7%.

US two- and 30-year yields slid as well.

Brent crude futures, the global benchmark for oil, were up 43 cents at US$48.85 per barrel.

U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 46 cents to settle at $46.54 per barrel. Economists polled by MarketWatch had forecast an 0.1% increase.

Defensive housebuilding stocks such as Barratt Development BDEV.L and Persimmon PSN.L were among the top blue-chip fallers.

Anglo American, with considerable South Africa exposure, also benefited from the country suspending implementation of a new mining law which analysts had said could negatively impact firms. It earlier fell to 2.279 percent, its lowest since June 30. The euro jumped by 0.42%, hitting $1.1449. Despite the results being in line with forecasts, the shares slid 2.2 percent to the bottom of the mid-caps. But the Fed's preferred inflation measure, PCE deflator, has lagged and was at 1.4 percent.

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