Though a positive read for dollar traders, todays long anticipated consumer price gauge came and went with little of the rally expected with the improved odds of an additional rate hike at the June 28th Federal Open Market Committee meeting. Price action in the majors was predominately driven by the US dollar given the similar swings across all four. In the benchmark EURUSD pair, a steady rise was produced through much of the Asian session, which was exhausted around 1.2605 at 8:45 GMT and subsequently completely retraced leading up to the scheduled economic releases due at the open of North American markets. The real trading opportunities were expected around 12:30 GMT in accordance to the CPI data, where the bulk of the sessions volatility was expected. In the aftermath of the releases, only modest action was seen before the EURUSD hit the session low around 1.2530 before the crosses made significant rallies. Similar rallies were seen across all the majors, while the euro-backed pair specifically made a 120 pip run.
In fundamental terms, the consumer inflation data was what dollar bulls were banking on. The annualized headline read accelerated to 4.2% in May, far outpacing the 3.5% consensus among analysts. Within the broadest read, the largest contributor to the faster pace of inflation was a 2.4% spike in the energy product component, chiefly the result of gasoline bills. The more telling read however was in the yearly core figure, which bested expectations of a repeat 2.3% rise, by printing a 2.4% number, the fastest rate in more than four years. Breaking down the core components, a monthly 0.4% rise in service-based goods and largest increase in rents since 1990 were specifically dear for consumers in May. Over the first five months of the year, consumer prices have grown at an annual 3.1% clip compared to 2.4% for the same period only a year ago. The disparity in the headline figure was even greater as the first five months of 2006 have produced an annual 5.2% jump versus 3.6% last year a good visual for the effects of recent energy prices. Inflation fears have been especially aggravated in May by a stall in earning potential in the US. Consumers were hit last month when the economy only added 75,000 jobs and weekly wages plummeted 0.7% when adjusted for inflation. Fed Chief Bernanke now has the data necessary to fully necessitate a rate hike at the end of this month. Fed fund futures have fully priced in a 25 basis point hike from the coming meeting, up from 86% yesterday. Tomorrows docket will keep the ball rolling with releases of the TICS, Empire Manufacturing survey, Philly Fed survey and industrial production.
US equities rebounded from seven-month lows by mid-day Wednesday as sector upgrades and star performers buoyed indices above concerns of higher lending rates. The Dow Index led the way with a 0.7% advance to 10,782.47, while the NASDAQ Composite trailed with a 0.6% rise to 2,084.60 and the S&P 500 with its own 0.3% gain to 1,227.97 by 16:20 GMT. Coaching the Dow index higher, shares of commercial aircraft maker Boeing forged head $3.91to $80.89 per share after the blue chip announced it received a 20 plane order from Singapore Airlines. Leading the tech heavy NASDAQ into the green was a strong performance by Intel. The worlds largest computer chip maker received a boosted in analyst recommendations that sent shares $0.64 higher to $17.76. Following suit, Intel rival Advanced Micro Devices Inc. also received an upgrade boosting shares $0.99 to $25.38.
Government paper plummeted in debt trading as traders now fully expect a firming monetary policy in the coming weeks. The 10-year note fell 22/32nds to pay 100 18/32 of face value with yields up 9 basis points to 5.05. A larger decline on the longer 30-year contract dropped 1 1/32nds to 91 1/32 of face with yields 7 basis points higher to 5.09.
