Weak CPI Data, Dip in Treasury Yields Encourage Dollar Investors to Book Profits

The US. Dollar was under pressure against a basket of currencies on Thursday, as a smaller-than-expected rise in consumer inflation encouraged long investors, betting on an acceleration in consumer prices that could drive the Fed to raise interest rates more aggressively, decided to book profits following a prolonged rally in terms of price and time.

June U.S. Dollar Index futures settled at 92.52, down -0.37 or -0.40%.

U.S. Economic Data

The Labor Department said on Thursday its Consumer Price Index rose 0.2 percent after slipping 0.1 percent in March. In the 12 months through April, the CPI increased 2.5 percent, the biggest gain since February 2017, after rising 2.4 percent in March.

Excluding the volatile food and energy components, the CPI edged up 0.1 percent after two straight monthly increases of 0.2 percent. The so-called core CPI rose 2.1 percent year-on-year in April, matching March’s increase.

Economists had forecast the CPI rebounding 0.3 percent in April and the core CPI climbing 0.2 percent.

New applications for U.S. unemployment benefits unexpectedly held near more than a 48-year low last week, pointing to a further tightening of labor market conditions.

Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 211,000 for the week-ended May 5, the Labor Department said on Thursday. Claims dropped to 209,000 during the week-ended April 21, which was the lowest level since December 1969.

Economists were looking for claims to rise to 218,000 in the latest week.

In other news, the federal government swung to a surplus of $214.3 billion in April, primarily reflecting the revenue from that month’s annual tax filing deadline. The Treasury Department reported Thursday that last month’s surplus increased 17.4 percent from a year ago.

U.S. Treasury Markets

U.S. government debt yields fell Thursday after U.S. consumer inflation, a measure of price growth in the economy, fell short of Wall Street’s expectations. Rising inflation is a threat to Treasury prices because it erodes the purchasing power of their fixed payments, putting upward pressure on rates.

The yield on the benchmark 10-year Treasury note was lower at 2.966 percent following the softer CPI data, while the yield on the 30-year Treasury bond was lower to 3.112 percent.

Forex

On Thursday, oversold conditions and a weak dollar helped boost the Euro. A drop in U.S. Treasury yields drove the Japanese Yen higher, but gains were limited by stronger demand for higher-risk assets. The British Pound hit its lowest level in four months, after the Bank of England reduced its growth and inflation outlook for 2018 and 2019 while keeping rates steady as expected.