Weak data pare traders' view on year-end USA rate hike

Dollar Drops and Stocks Surge as Yellen Echoes the'Fed Put

Weak data pare traders' view on year-end USA rate hike

The dollar plunged immediately after today's widely expected data on US CPI and retail sales disappointed market watchers who, among others, were looking for evidence on inflationary pressures that would support another rate hike by the Federal Reserve during the current year. Without autos, retail sales are expected to be up 0.2 percent.

"Alongside are retail sales, where we expect on-consensus gains and a solid core sales pickup", said TD securities in their week ahead report.

Meanwhile, the Commerce Department reported that retail sales slipped 0.2% in June, while sales excluding autos also declined 0.2% from May.

"The auto industry has been driving sales aggressively with subprime lending and leasing agreements", Harris said.

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The fourth straight below-forecast reading on the consumer price index in June pushed inflation further away from the Fed's 2-percent goal.

Excluding the volatile food and energy categories, prices rose 0.1 percent in June and 1.7 percent from a year earlier. The pan-European FTSEurofirst 300 index .FTEU3 of leading shares rebounded to rise 0.10 percent and close at 1520.41.

The University of MI survey will provide its latest snapshot of consumer confidence at 10 a.m.

The Labor Department released a separate report on Thursday showing a modest uptick in producer prices in the month of June. Inventories are expected to rise by 0.2%.

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Janet Yellen's hawkish sentiment earlier this month gave way to a cautious tone on Wednesday when she conceded that subdued inflation could hinder the Fed's rate hiking plan - presumably she had been privy to Friday's inflation figures before the rest of us. The Fed is now expected to raise interest rates once more this year, most likely in December, and announce plans to start reducing its roughly $4.5 trillion balance sheet following years of US Treasury and Mortgage Backed Securities purchases. "It's premature to reach the judgment that we're not on the path to 2% inflation over the next couple of years", Yellen said. The gap between Canada's 2-year yield and its US equivalent narrowed by 1.2 basis points to a spread of -14.4 basis points, its narrowest since August 18.The narrower spread comes after the Bank of Canada raised interest rates on Wednesday for the first time in seven years. "Future removals of accommodation should be done in a gradual and patient manner". While the greenback held steady against the euro and the franc, it fell against the pound.

CURRENCIES: The dollar rose to 113.29 yen from 113.28 yen. The Nasdaq composite added 0.2 percent to 6,274.44.

EUR/USD is likely to find support at 1.1388 levels and now trading at 1.1465 levels. The Canadian dollar was trading at C$1.2715 to the greenback, or 78.65 US cents, up 0.1 percent.

GBP/USD is supported in the range of 1.2952 levels and now trading at 1.3101 levels. That, however, started to show-up on Friday morning when we got even more disappointing USA data.

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