Cheaper gas, wireless plans keep United States inflation in check

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Traders on Friday reduced their view the Federal Reserve would raise rates again before year-end following weaker-than-forecast data on consumer prices and retail sales in June, according to interest rates futures. Retail sales dropped 0.2 percent last month.

"We expect a little more cautious language from Fed officials on the inflation outlook going forward", said Michael Hanson, chief economist at TD Securities in NY.

But excluding auto sales and patrol, retail sales still contracted by 0.1 per cent.

US consumer prices remained unchanged in June, indicating inflation may remain stuck below the goal of the USA central bank for a long time.

Gas stations, however, saw a 1.3 per cent drop in sales last month, a time when Americans traditionally hit the road for summer holidays pushing gasoline prices higher.

The so-called core CPI, which strips out food and energy costs, edged up 0.1% in June, matching the increase of the two previous months.

Both contracts have risen above their 50 per cent retracement of their fall between mid-last week and Monday. The consumer sentiment index is expected to edge down to 95.0 in July falling to 95.1 in June.

"Yellen gave some hope to the dollar bulls with her acknowledgement of the improvements in the economy, but at the end of the day investors are still skeptical of what data is going to be like", said Kathy Lien, managing director at BK Asset Management in NY.

Fed Chair Janet Yellen also said on Thursday that the central bank's further rate hikes could be gradual, given persistently low inflation despite an improving economy.

Most economists previously had expected the U.S. central bank to raise rates at its September meeting, but the odds of that fell when the disappointing data were published. "I doubt this alone would lead to a risk-off market", said Hiroko Iwaki, senior fixed income strategist at Mizuho Securities.

While the yen, which has struggled in recent months, was performing well against the greenback, Erlam said there was "little reason to believe this is anything more than a correction".

CURRENCIES: The dollar rose to 113.44 yen from 113.28 yen. However, the number was higher than May's 0.3% contraction.

EUR/USD is likely to find support at 1.1388 levels and now trading at 1.1465 levels.

The New Zealand dollar held onto its overnight gains but was headed for a 0.8 percent weekly decline as investors await several USA economic indicators, including inflation numbers. Year-on-year, production advanced 6.5%. The euro jumped by 0.42%, hitting $1.1449. Meanwhile, growth and inflation has started to show with more consistency in Europe and the United Kingdom, and this has led to even more deductive weakness in the Greenback as traders shift rate hike bets in the Euro and British Pound.

Data from Eurostat showed that the Eurozone trade surplus increased in May as growth in exports outpaced the rise in imports.

All other euro zone yields were down 1-3 bps on the day.

Extending early slide, the greenback dropped to an 11-day low of 1.3012 against the pound.

USD/CAD is supported at 1.2614 levels and is trading at 1.2649 levels. The Bank of England's trade-weighted index stood at 77.1, nearly 5 percent above seven-year lows hit last October, but 2.5 percent off highs hit in May when financial investors were banking on an electoral landslide for the ruling Conservatives.

AUD/USD is supported around 0.7748 levels and now trading at 0.7812 levels.

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