The dollar lost all its morning gains after the release of inflation data (Producer Price Index) slowing sharply compared to previous expectations and data.
The dollar index is currently at 102.837 against a basket of foreign currencies, down 0.12%, after the way is paved for a strong Fed rate cut for the remainder of 2024.
All eyes are still on the CPI data expected tomorrow to give more confidence to the Fed in its campaign to shift to monetary easing after a long monetary tightening campaign.
Producer Price Index between expectations and reality
Core Producer Price Index (excluding food and energy) year-on-year rose 2.4%, lower than 2.7% forecast by experts and 3.0% in June. On a monthly basis, the core producer price index for July rose by 0.0%, which did not grow at all, and is below experts’ expectations of a rise of 0.2%.
The headline PPI rose year-on-year by 2.2% in July, down from 2.7% in June and below experts’ expectations of a rise of 2.3%. On a monthly basis, the PPI rose 0.1% from the previous forecast and reading of 0.2%.
The widely watched CPI data is due on Wednesday and is also expected to show inflation slowing slightly in July.
Investors will also analyze the dataset to try to determine whether the Federal Reserve will cut by 50 basis points or cut by 25 basis points at its September meeting – and traders are currently evenly divided between the two, according to the Federal Reserve’s monitoring tool NASDAQ:CME.
The Fed at the end of July kept the interest rate in the same range of 5.25%-5.50% as it was more than a year ago, but indicated that a rate cut could come as soon as September. If inflation continues to slow down.
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Sterling rises after wage growth
In Europe, the GBP/USD forex pair was up 0.3% at 1.2801 after data showed wages rose in United Kingdom wage growth, without bonuses, by 5.4% in June.
Although this is still down from the revised reading of 5.8% in the previous month, it is still higher than expected growth of 4.6% and suggests that the Bank of England will have difficulty fully reining in inflation.
In addition, grocery price inflation rose in United Kingdom this month for the first time since March 2023, with market researcher Kantar reporting that annual grocery price inflation stood at 1.8% in the four weeks to August 4, versus 1.6% in the previous four-week period.
EUR/USD fell 0.1% to 1.0922, with the euro slightly lower after Spanish consumer prices fell 0.5% in July month-on-month, a 2.8% year-on-year rise.
The ECB began cutting interest rates in June, and many expect policymakers to agree to another cut in September, especially as inflation shows signs of fading.
Yen reversal after US inflation data
In Asia, the JPY/USD rose 0.4% to 147.81, with the yen weakening after a Reuters report that Japan’s parliament plans to hold a special session on Aug. 23 to discuss the central bank’s decision last month to raise interest rates.
However, it lagged behind the PPI data, with the USDJPY now trading at 147.0, down 0.13%. The pair fell to a low of 141 last week amid increased safe-haven demand and a decline in transport trade, but questions remain about how much room Japan Bank has to raise interest rates further this year.
{{2111|CN/USD}} fell 0.1% to 7.1704, with industrial production and retail sales data coming out later this week.
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