US Dollar Down With Treasury Yields - US Advance Retail Sales Results Skew Reality

The US dollar was the weakest of the majors as increased risk appetite drove up demand for FX carry trades and US equities. This was interesting in that we've seen the correlation of the US dollar with risk trends start to die down, but by the end of the day, the greenback was a clear loser. Adding to dollar weakness, Treasuries surged, sending yields spiraling lower as an $11 billion sale of 30-year bonds drew the highest yield in almost two years, helping to alleviate concerns that foreign investor demand for the instruments would decline in light of the massive US budget deficit.

In, the US Commerce Department said that advance retail sales rose by 0.5 percent in May, the first increase in three months. The gain was due primarily to a rise in spending on motor vehicles (+0.5 percent), building materials (+1.3 percent), and at gasoline stations (+3.6 percent). That said, this index is not adjusted for inflation, so the steady rise in average gas prices from roughly $2.00/gallon to nearly $2.50/gallon, according to, skews the results of the report.

Meanwhile, the US Labor Department said that initial jobless claims fell by 24,000 during the week ending June 6, bringing the total down to a 19-week low of 601,000. On the other hand, continuing claims rose by 59,000 to yet another record high of 6,816,000 during the week ending May 30, signaling the same theme as last week’s non-farm payrolls report: the rate of job losses may be slowing, but the unemployment rate is still steadily climbing.

Looking ahead to Friday, the preliminary reading of the University of Michigan’s consumer confidence index for the month of June is forecasted to rise for the fourth straight month to match the March 2008 high of 69.5.

As it stands, recent improvements in the index have been due to increased optimism on the economic outlook, as sentiment on current conditions actually slipped between May and April, suggesting that consumers are seeing any economic changes in their daily life, but are convinced that they will see it eventually. Indeed, the pace of job losses has started to slow, but if consumers don’t start to see more encouraging signs of growth in the near-term, confidence in the outlook could start to fall.
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