Dollar Sinks as Hilsenrath Piles On

A solid US report on durable goods orders barely boosted the dollar while musings from WSJ Fedwatcher Jon Hilsenrath knocked the dollar to the worst levels of the week. US data and The US dollar has been the worst performer in 3 of the 4 sessions this week. Japanese CPI is the major event on the calendar.  

US durable goods orders rose 4.2% in June, soaring past the 1.4% rise expected on strong defense and aircraft orders. Stripping out those volatile components, orders rose 0.7% versus 0.6% expected but upward revisions to the prior number were significant (+2.2% vs +1.1%). Separately, initial jobless claims were at 343K compared to 340K expected.

Despite numbers pointing to better Q3 growth, the US dollar hardly inched higher. Later, the FT reported comments from possible Fed Chairman Larry Summers who said in April “QE in my view is less efficacious for the real economy than most people suppose.”

The Summers report also failed to boost the dollar but later as Hilsenrath said the Fed wouldn't taper in July (obvious) and that Bernanke could insert more-dovish guidance (that would be a surprise), the dollar tanked.

The move was partly driven by technicals as the euro, pound and yen all broke to fresh extremes on the week. The large dollar declines this week have been a puzzle but in a quiet summer market moves can stretch longer than usual.

Coming up later, the Bank of Japan will be closely watching the CPI report. The June national CPI is expected to turn into positive territory, up 0.1% y/y compared to -0.3% in May. The real-time numbers on Tokyo CPI are also a factor, with July CPI expected up 0.2% y/y.

The BOJ has staked everything on beating deflation this time around and signs of progress would be welcome. On the other hand, a soft reading could boost USD/JPY on speculation about more measures. The data will be released at 2330 GMT.