The US dollar nearly completed a week of recovery until weakness struck again. The producer price figures serve as a reality check. The greenback comeback is now in doubt and the final verdict belongs to the more important inflation indicator: the Consumer Price Index released tomorrow.
Jobs are looking great as seen in the Non-Farm Payrolls and also in the JOLTs report. Inflation? Not so much.
Headline PPI slipped by 0.1% m/m against expectations for a rise of the same scale. Core PPI also dropped, by 0.1% against predictions for a rise of 0.2%. Year over year data followed with 1.9% on the headline and 1.8% on the core, both below projections.
If PPI represents inflation in the pipeline, things aren’t looking so great. And without inflation now or later, it is hard to see much enthusiasm for a rate hike.
In a separate report, we learned that US jobless claims stand at 244K, within known ranges. Once again, jobs look good but inflation is nowhere to be seen.
Currency reaction to the PPI report
- EUR/USD had already dipped under the 2015 high of 1.1710 but bounced back remarkably to 1.1744.
- USD/JPY was flirting with 110 and is now at 109.60. Tensions around North Korea boost the yen.
- GBP/USD clawed its way back above 1.30. UK data has been mixed.
- USD/CAD is down to 1.2680 despite clear weakness from the C$ earlier this week.
- AUD/USD is also recovering to 0.79.
Later today we will hear from Bill Dudley. He is No. 3 at the Fed.Get the 5 most predictable currency pairs