A swing and a miss

That feeling of having the wind knocked out of you is one the US dollar is all too familiar with.

The dollar was sold off Friday morning after a stream of data for the month of June failed to stoke hopes of a pickup in the second quarter. Retail sales were expected to pick up, but instead of a 0.2% expansion, we saw a -0.2% decline.

Inflation was flat in June. Core inflation – which discounts more volatile elements that can distort underlying trends – was unchanged. Holding fast at an annual increase of 1.7%, it was the same as the month before which marked a two-year low for the index. This makes the argument of “transitory” weakness in the first quarter more difficult to pitch, but not impossible. We note that two categories that have been lagging saw a pickup last month: shelter and medical care both increased.

This is the Federal Reserve’s last look at headline inflation figures before their two-day policy meeting held on the last week in July.

The mixing bowl

Two other economic indicators for the US did little to clear up the economic outlook.

University of Michigan’s consumer sentiment survey has been running hot since the election, but can it last? A preliminary reading for of 93.1 is the weakest reading since September. Current conditions were assessed to be more positive in July. However, it is still the lowest reading in seven months on lower future expectations.

Industrial production is one area where the US economy doesn’t disappoint.  June’s estimate came in higher than expected, expanding 0.4% month-over-month. Output rebounded in manufacturing while mining rose at a slower pace. This is stemming some of the USD bleeding, but isn’t enough to stop it entirely after the miss in inflation data.

The healthcare bill not looking so healthy.

Two Republican senators have come out against the revised Senate healthcare bill. This puts Senate Majority Leader Mitch McConnell in a tricky position in trying to pass this legislation. McConnell and the GOP leaders cannot afford to lose another vote.

Moderate Republicans have expressed serious concerns about the bill, which some in the far-right have said doesn’t go far enough. The cuts to Medicaid and the so-called ‘Cruz amendment’, which they say will weaken patient protections and hurt those with pre-existing conditions, are the main points of contention.

President Trump has said Republican Senators must come through and back the bill to repeal and replace Obamacare, but the road ahead might be bumpy.

EURUSD: Euro higher by half a cent against the dollar, which continues to trade heavy after inflation data missed in June.

GBPUSD: Sterling higher against the greenback by almost a full percent. Weak inflation and retail sales keeping a lid on USD.

AUDUSD: Another story of USD weakness, with Aussie dollar higher by over 1% against the USD at the time of writing.

USDCAD: Canadian dollar continues to keep over one-year highs against the USD as weak US data compounds a stronger CAD following Wednesday’s rate rise.

USDJPY: Yen stronger as the dollar tumbles across the board. USDJPY fell to the mid-112s Friday afternoon.