US data causes fall in USD
After a strong couple of weeks for USD US inflation fell for the second consecutive month in April, the first back-to-back monthly declines since late 2008. CPI inflation decreased by 0.4% on the month dropping the headline annual rate to 1.1%. Falling gasoline prices were the main driver of the retreat in inflation, the largest monthly decline since December 2008. Low inflation bolsters the case for the Fed to maintain the current $85bn per month QE stimulus programme. Recovery in the US job market recovery stuttered as the numbers filing new jobless claims climbed at the fastest pace in six months. Initial claims for state unemployment benefits jumped by 32,000 to 350,000 in the week ended 11 May, much higher than the consensus view. Also in the US, manufacturing in the Philadelphia region unexpectedly contracted in May for the first time in three months as new orders declined. The index slipped to -5.2 from 1.3 in the previous month.
Further downbeat news for the US came from the housing market as new home starts fell to a five month low in April. Housing starts slumped by 16.5% to an annualised rate of 853k, indicating an easing in progress as builders slowed work on apartments. One positive development in the data release was the volume of new building permits which surged to an almost five year high.
The weaker than expected US data weighed on the US dollar helping EUR/USD hit a high of $1.2929 with GBP/USD up to $1.5322. The dollar’s loses were later reversed after a Fed official indicated the US central bank could begin to wind down its bond buying programme as soon as the end of the summer.