The dollar fell following the CPI and retail sales data, with both releases missing market expectations. EURUSD rallied from just over 1.1200 to top at 1.1278, as USDJPY sagged to 109.34 lows from 110.25.
U.S. CPI fell 0.1% in May with the core index up 0.1%. There were no revisions to April’s respective gains of 0.2% and 0.1%. Compared to last May, headline prices slowed to 1.9% y/y versus 2.2% y/y, with the ex-food and energy component at 1.7% y/y from 1.9% y/y. Energy prices dropped 2.7% versus the 1.1% gain previously. Transportation costs declined 1.4% following the prior 0.1% rise. Services prices edged up 0.2%, as was the case in April. Food/beverage prices rose 0.1% from the prior 0.2% gain. Apparel prices dropped 0.8% from -0.3%. Medical care was flat. Real average hourly earnings rose 0.3% from unchanged, and were up 0.6% y/y from 0.3% y/y. The data could make Fed doves think twice about future rate moves.
U.S. retail sales underperformed with a 0.3% May headline and ex-auto drop, following tiny revisions that were upward in April but downward in March. We saw the expected May retail sales restraint from declines of 2.4% for service stations and 0.2% for auto dealers, with the expected flat figure for building materials, but additional weakness in other sales components. We still expect a trimming in Q1 GDP growth to 0.9% from 1.2%, with a $2 bln reduction in Q1 consumption and other hits of $3 bln in construction and $1 bln in intellectual property, but hikes of $3 bln in factory inventories, $7 bln in exports and $15 bln in imports. We still expect a 2.5% growth rate for Q2 GDP, with a 3.6% (was 3.7%) Q2 growth rate for real consumption after a 0.6% Q1 rate.
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