The US dollar strengthened toward the end of the trading week as fresh inflation data resulted in safe-haven demand. The greenback came under pressure on Wednesday following a softer consumer price index (CPI) report, but the upbeat attitude was diminished after higher-than-expected trade prices last month.
According to the Bureau of Labor Statistics (BLS), import prices surged 0.9% in April, up from an upwardly revised 0.6% in March. The reading was higher than the consensus estimate of 0.3%. Export prices rose 0.5%, up from a downwardly adjusted 0.1%, and came in slightly above the market forecast of 0.4%.
As FX Daily Report noted:
“The consumer price index (CPI) jumped 0.3%, down from 0.4% in the previous month. This also matched economists’ expectations.
Core inflation, which omits the volatile energy and food sectors, slowed to 3.6%, down from 3.8%. This, too, met the consensus estimate. On a monthly basis, core CPI jumped 0.3%, down from 0.4% in March.
The concerning part of the CPI report was that the six-month annualized CPI climbed to 3.7%, the highest in eight months. Six-month annualized core CPI climbed to 4.1%, the highest since July. The supercore CPI, which excludes housing, jumped to 4.9%.”
For the financial markets, the renewed inflationary pressures were offset by further weakness in the economic data.
Industrial production was flat at 0% in April, slightly below the market estimate of 0.1%. Manufacturing output fell 0.3%, down from the 0.2% jump in March and far short of economists’ expectations of 0.2%. The Federal Reserve Bank of Philadelphia’s Manufacturing Index slowed to 4.5 in May, down from 15.5 in April and below the market forecast of eight.
On the labor front, initial jobless claims eased to 222,000 for the week ending May 11, higher than the market projection of 220,000. Continuing jobless claims climbed to 1.794 million, while the four-week average, which removes the week-to-week volatility, inched higher to 217,750.
In the housing sector, housing starts surged 5.7% to 1.36 million units, and building permits fell 3% to 1.440 million units.
But while traders poured into the greenback, the equities arena was robust. The Dow Jones Industrial Average topped 40,000 for the first time on record. The S&P 500 and tech-heavy Nasdaq Composite Index rose as much as 0.32%.
The US Dollar Index (DXY), a gauge of the buck against a basket of currencies, rose 0.14% to 104.49, from an opening of 104.21. The index is down 0.7% this week but remains up 3.1% year-to-date.
US Treasury yields were mixed, with the benchmark ten-year yield flat at 4.356%. The two-year yield added 3.8 basis points to 4.774%, while the 30-year bond fell 1.9 basis points to 4.497%.