Traders on Friday reduced their view the Federal Reserve would raise rates again before year-end following weaker-than-forecast data on consumer prices and retail sales in June, according to interest rates futures.
The fourth straight below-forecast reading on the consumer price index in June pushed inflation further away from the Fed's 2-percent goal. The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent in June.
Compared to a year ago, overall consumer price inflation is up 1.6%, the smallest gain since October.
Turning back to the economic data, consumer price inflation fell to a 1.6 percent annual rate from 1.9 percent prior.
In a separate report, the Commerce Department said retail sales fell 0.2 per cent last month, weighed down by declines in receipts at service stations, clothing stores and supermarkets.
The dollar extended losses against a basket of currencies on the data while prices for USA government bonds rose. The British pound rose sharply against the greenback on Friday, climbing more than 1 percent after data further undermined expectations for more hikes in USA interest rates.
The Australian dollar rose 0.4 percent to $0.7758, well on track to post its best weekly performance in four months.
The U.S. data bolstered expectations that the U.S. Federal Reserve would likely to move slowly to continue raising interest rates in the absence of inflation signs. The central bank usually tries to aim for 2% core inflation or less. Matters appeared to kick-off even before Chair Yellen's opening statement was read at 10:00 AM on Wednesday, as the Monetary Policy Report to Congress that was released at 8:30 AM seemed to catch trader's attention as the final paragraph of the report reiterated the "Fed Put" that has helped to keep equity prices elevated.
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If we look at the chart of Core inflation below it shows just how bad the inflation problem is - the chart shows core inflation in an entrenched downtrend, measured on a year-on-year basis over a five-year period.
The dollar index fell 0.4 per cent against a basket of currencies, while the euro gained 0.39 per cent to $1.144.
The New Zealand dollar another high-earning currency that has gained from significant risk appetite this week, shed 0.02 percent to 0.7318 after reaching an eight-month peak of 0.7369 on Thursday.
The Dow Jones Industrial Average rose 19.57 points, or 0.09 per cent, to 21,572.66.
USA 10-year yield fell to 2.303 percent, from 2.348 percent late on Thursday.
The Fed is projecting one more interest rate hike for this year, which economists expecting it to come in December.
Indeed a cursory look at the EUR/USD chart, which has extended its uptrend into the 1.14s recently, supports a continuation higher, which would be commensurate with a weaker Dollar profile.
OIL: Benchmark U.S. crude gained 7 cents to $46.15 per barrel in electronic trading on New York Mercantile Exchange.