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The dollar was off to a downbeat start after CPI and retail sales figures all came in the red.

  • U.S. headline retail sales down 0.3% vs. projected 0.1% uptick in May
  • U.S. core retail sales down 0.3% vs. estimated 0.2% increase
  • U.S. headline CPI down 0.1% vs. projected 0.2% uptick in May
  • U.S. core CPI posted meager 0.1% gain vs. estimated 0.2% rise
  • EIA crude oil inventories down by 1.7M barrels vs. expected 2.3M draw
  • Fed hiked interest rates by 0.25% from <1.00% to <1.25% as expected

Major Events/Reports

Downbeat U.S. economic data

So much for that Q1 slowdown being temporary! It looks like U.S. consumers are still not in a spending mood in May as retail sales figures missed their marks.

Headline retail sales slipped 0.3% in May instead of posting the projected 0.1% uptick while the core version of the report also indicated a 0.3% drop. This marks the biggest slide in consumer spending in 16 months, mostly spurred by lower gasoline prices and a reduction in sales of electronics and appliances.

Meanwhile, headline CPI is down 0.1% instead of posting another 0.2% uptick while the core reading posted a meager 0.1% gain, short of the 0.2% estimated rise. Components of the inflation report indicated that the dip was due to lower energy prices, which affected airline fares, motor vehicles, and apparel.

FOMC statement

As expected, the Fed upped interest rates by 0.25% from <1.00% to <1.25% in their June monetary policy statement. To top it off, they upgraded their 2017 GDP projection from their 2.1% estimate in March to 2.2% this month.

The FOMC also revised unemployment rate projections for this year and the next couple of years from 4.5% down to 4.3% this 2017 and to 4.2% in 2018-2019. However, this year’s inflation forecasts were downgraded from 1.9% to 1.6% for the headline reading and from 1.9% to 1.7% for the core PCE inflation figure.

Fed Economic Projections (June 2017)
Fed Economic Projections (June 2017)

In their official statement, policymakers admitted that inflation has dipped recently and could remain below the 2% target in the near term. The dot plot of rate hike expectations also confirmed that another tightening move is possible before the year comes to a close.

As for balance sheet adjustments, the U.S. central bank also shared a more detailed plan of how they plan on reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities. Depending on the pace of economic improvements, the Fed can gradually accelerate its unwinding and halt reinvestments of larger amounts of maturing securities.

During the presser, Fed head honcho Yellen acknowledged that labor force participation has been steady and that she expects the jobs market to strengthen further. When it came to inflation, she brushed off the recent disappointments in saying that the drag was due to one-off items.

All in all, the Fed statement, estimates, and presser signaled that another interest rate hike may be in the cards for the remainder of the year. Yellen even mentioned that additional rate hikes are possible over the next few years.

Smaller than expected draw in oil stockpiles

Crude oil resumed its slide after the Energy Information Administration reported a smaller than expected reduction in inventories.

For the previous week, stockpiles were down by 1.7 million barrels versus the expected draw of 2.3 million barrels, still keeping some oversupply concerns in play. This also wasn’t enough to erase a huge chunk of the buildup of 3.3 million barrels the other week.

  • WTI crude oil is down to $44.80 per barrel (-3.57%)
  • Brent crude oil is down to $47.08 per barrel (-3.37%)

Major Market Mover(s):


Downbeat CPI and retail sales figures dragged the dollar lower during the first half of the session, but the Greenback was able to erase some of its losses after the FOMC statement.

USD/JPY dipped to a low of 108.83 then recovered to 109.50 (-0.51%), USD/CHF fell to .9641 then rebounded to .9714 (+0.28%), and EUR/USD topped out at 1.1296 then retreated to 1.1220 (+0.10%).

Watch Out For:

  • 11:45 pm GMT: New Zealand Q1 GDP (0.7% expected, 0.4% previous)
  • 2:00 am GMT: Australia MI inflation expectations (4.0% previous)
  • 2:30 am GMT: Australia employment change (9.7K expected, 37.4K previous) and jobless rate (no change to 5.7% expected)