The dollar fell after the release of a weak set of US data that would be disappointing for the Federal Reserve, which is expected to deliver a 25-basis point rate hike later today. The broadly weaker greenback helped sterling erase losses made from weak UK wage data.

Both US CPI and retail sales numbers for May came in short of expectations, which resulted in the dollar index falling to a seven-month low of 96.32 after having risen to as high as 97.11. Against the yen, the dollar slid to 108.94 yen from 110.33, the lowest since April 21.

Headline CPI was weaker than expected at -0.1% month-on-month in May, reversing a prior increase of 0.2%. It was expected to remain flat. Meanwhile, year-on-year CPI rose 1.9% versus a prior 2.2%. The further deceleration in core inflation to 1.7% year-on-year was the lowest since May 2015. It was forecast to match the prior 1.9% rise.

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The US retail sales data showed a 0.3% month-on-month decline in the headline number last month from the prior 0.3% rise. Retail sales ex-autos were also down by the same amount and the control group (ex auto, gasoline, food service and building materials) was flat on the month. There were some minor upward revisions to April’s figures but not enough to offset the shortfall in May.

Despite today’s weak data, the markets are still expecting the Fed to hike rates after concluding a two-day policy meeting today. The data likely isn’t weak enough for them to not deliver, however, it wouldn’t be surprising if the communication is dovish regarding the pace of future hikes particularly given the recent weakness in core CPI. It is widely expected that the Fed will deliver a 25 basis-point increase to the Fed funds target rate to between 1.00% to 1.25%.

Sterling reversed earlier session losses made after a disappointing UK employment report and rose briefly above the key $1.2800 level. The pound slipped against the dollar to $1.2722 on weaker-than-expected UK earnings data which showed average weekly earnings rose 2.1% year-on-year in April and just 1.7% year-on-year for the ex-bonus number, the lowest in more than two years. The disappointing data add to concerns that low wage growth will dampen UK consumer spending amid rising inflation. The data reinforce those expecting that the Bank of England will not change monetary policy at tomorrow’s policy meeting.

The euro rose to its highest in seven months against the greenback to hit $1.1295, after the dollar broadly weakened on the release of the soft US data. There was little impact earlier in the session to Eurozone industrial production data which rose 0.5% month-on-month in April, as expected. March was revised higher to a reading of 0.2%.

The loonie extended gains today, pressuring the USD/CAD pair to a low of C$1.3163, down from Friday’s C$1.3537 high after comments from Bank of Canada officials this week that hinted to a rate increase later this year.

Gold jumped to a peak of $1279.37 an ounce from $1264.18, driven by a broadly weaker dollar.

Oil prices fell after the report from the Energy Information Administration showed US crude inventories declined last week as refineries increased output. WTI crude slid to $45.08 a barrel immediately after the data from an earlier high of $46.45.


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