US Dollar Tumbles As Empire Fed Index Disappoints, G8 Stays Silent On Currencies

Oil prices fell after peaking to a record high of $139.89 during today’s session as Saudi Arabia told the UN that it will increase oil production by 200,000 barrels to 9.7M barrels a day in July. Raging energy costs continued to take a toll on the US economy as the New York Fed announced that the Empire Manufacturing index fell more than expected to -8.7 from -3.2 in May due to weak consumer and business demand. Meanwhile, foreign capital inflows unexpectedly increased in April as total net TIC flows increased to $60.6B from -$48.7B. On the other hand, the housing market continued to face downside risks as the NAHB housing market index fell to a 23-year low of 18, down from a reading of 19 during the month prior.

Falling oil prices led the stock markets to consolidate early morning losses as oil futures fell just shy of $134/bbl. As a result, the DJIA fell 38.27 points to 12,269.08 points, with 19 of the 30 components declining. Among the broader indices, the S&P 500 rose 0.11 points to hold off at 1,360.14 points amid 202 stocks falling to a new 52 week low.

The recovery in the stock markets paired with hawkish comments by Richmond Fed President Jeffrey Lacker curbed demands for US Treasuries. As a result, the benchmark 10-Year yield rose to 4.269 percent from 4.261 percent, while the 2-Year yield inched higher to 3.044 percent from 3.039 percent.

Looking ahead, the producer price index will be the main event risk for the US dollar as economists forecast the yearly headline figure to increase to 6.7 percent from 6.5 percent. Housing starts may also spur bearish sentiment as market participants anticipate the index to tumble to 980K from 1032K. Amid downbeat expectations, US productivity is expect to hold at 79.7 percent as economist forecast industrial production to rise to 0.1 percent from -0.7 percent.