Dollar Looks Worse For Wear, Breakout Fails After Yellen Comments, Weak Inflation

Dollar treads water, US inflation data awaited for Fed direction

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

Earlier, Japan's Nikkei dded 0.2 per cent, poised for a weekly rise of just over 1 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.3 per cent to its highest level in two years.

LONDON, July 14 (Reuters) - Euro zone bond yields fell on Friday, taking their cue from the patient approach of top USA policymakers on interest rate hikes and benign inflation data from the world's largest economy. Economists had forecast the CPI edging up 0.1 percent last month.

Cheap energy prices kept inflation in the United States flat last month in another sign that price pressures remain weak in the world's largest economy, Labour Department figures showed yesterday.

Chicago Fed president Charles Evans, for his part, posited that technological changes to the competitive landscape - best evidenced by the rise of e-commerce giant Amazon.com - may be suppressing inflation by leaving businesses less able to raise selling prices even in the face of increasing labour costs.

US 10-year yield fell to 2.303 percent, from 2.348 percent late on Thursday. The 2 yr yield was at 1.35% before the data and is down 2 bps since. "Our baseline is they still do the balance sheet in September, and they hike rates in December".

Retail sales fell 0.2 percent in June, down for a second month. The Japanese yen strengthened 0.65 percent versus the greenback at 112.53 per dollar, while the Mexican peso gained 0.48 percent and the Canadian dollar rose 0.58 percent versus the greenback.

U.S. Treasury yields dropped to multi-week lows as the benign inflation data and unexpected fall in retail sales fuelled doubts about an interest rate increase later this year.

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The annual core inflation rate was 1.7 per cent, the same as May but six-tenths slower than in January. The Canadian dollar was trading at C$1.2715 to the greenback, or 78.65 USA cents, up 0.1 percent.

UK's benchmark FTSE 100 closed down by 0.7 percent, the pan-European FTSEurofirst 300 ended the day down by 0.01 percent, Germany's Dax ended down by 0.2 percent, France's CAC finished the day down by 0.1 percent. The yield on the 30-year bond, or the long bond, TMUBMUSD30Y, -0.85% fell 3.1 basis points to 2.888%.

"(The Fed comments) add to our conviction that no further Fed hike should be expected for the rest of the year, which should prove reassuring for markets concerned about excessive tightening risk globally", Mizuho's head of euro rates strategy Peter Chatwell said.

U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 46 cents to settle at $46.54 per barrel.

Chandler said in the near term, the euro could reach $1.16.

Oil rose 1 percent on Friday, boosted by lower USA stockpiles, a slight slowdown in US crude production and signs of increased Chinese demand, but trading was volatile as global supply remained strong.

Brent crude futures, the worldwide benchmark for oil, were up 43 cents at US$48.85 per barrel.

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