THE TAKEAWAY: Headline inflation holds Fed’s +2% medium-term target in July > Concerns over Fed’s lost credibility on inflation front diminished > Weekly labor figures suggest sustained pace of hiring, improvement in labor market sentiment > USDJPY BULLISH

Although there are still several data left on the US economic calendar this week, the two timeslots that were eyed this week – Tuesday and Thursday at 08:30 EDT/12:30 GMT – came up aces for the US Dollar.

First, the US Advance Retail Sales (JUL) report on Tuesday was improved overall, suggesting the growth will remain above +2.0% in the 3Q’13. Today, it’s an August weekly jobs report and the July inflation index that are propelling US Dollar gains.

Here are the figures that have provoked the US Treasury 10-year note yield to breakout to 2.821%, its highest level since August 1, 2011 (pre-US debt debacle and ensuing ‘AAA’ downgrade):

- Consumer Price Index (JUL): +2.0% as expected, from +1.8% (y/y)

- Consumer Price Index ex Food & Energy (Core) (JUL): +1.7% as expected, from +1.6% (y/y)

- Initial Jobless Claims (AUG 10): 320K versus 335K expected, from 335K (revised higher from 333K)

- Continuing Claims (AUG 3): 2969K versus 3000K expected, from 3023K (revised higher from 3018K)

Overall, Thursday’s inflation and jobs data complements Tuesday’s consumption data neatly: they suggest that the US consumer is getting stronger, which is positive for growth. Accordingly, such data, as expressed by the surge in US Treasury yields, puts another point in the ‘Septaper’ column.

Read more: ‘Septaper’ On? US Dollar Leads as Asian-Pacific FX Slides to Start Week

USDJPY 1-minute Chart: August 15, 2013

USDJPY_Surges_as_US_10-year_Yield_Breaks_Out_on_Strong_CPI_Claims_Data_body_Picture_1.png, USD/JPY Surges as US 10-year Yield Breaks Out on Strong CPI, Claims Data

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the releases, the USDJPY rallied from ¥98.22 to as high as 98.64. At the time this report was written, the pair had pulled back to 98.45. Price action was similar across the other components of the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR), with: the EURUSD falling from $1.3288 to as low as 1.3222; the GBPUSD falling from $1.5577 to as low as 1.5522; and the AUDUSD falling from $0.9144 to as low as 0.9092.

--- Written by Christopher Vecchio, Currency Analyst

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