Comment: US recap: USD dips, risk rallies after PPI hints at lower Fed rate path

Noram Lithium

13/08/2024 19:23

Aug 13 (Reuters) - The USD index extended early NorAm weakness, falling
0.33% to 102.76 in afternoon trading, after the release of below forecast PPI
data as both year-over-year and month-over-month core data came in below
forecast. 
    The cooler producer price data hints that Wednesday's consumer price read
(CPI) may confirm that U.S. disinflation remains on track. The softer inflation
data adds to odds for a 50bp Fed cut in September which is exerting additional
pressure on the dollar.
    Wednesday's headline U.S. CPI data is forecast steady at 3% with core CPI
expected to slip to 3.2% from 3.3% in June.
    EUR/USD rallied on the softer than forecast PPI data, rising 0.37% to 1.0972
ahead of the NorAm close. Euro traders are awaiting German retail sales and euro
zone employment for clues to any shifts in ECB policy.
    USD/JPY reversed early gains, ending NorAm -0.47% at 146.76, as the pair
once again failed to hold gains near 148.00. Should CPI on Wednesday ramp up
more aggressive Fed rate cut expectations, USD/JPY support by the Aug 9 low at
146.27, and Aug 8 low by 145.43, may come quickly into focus.
    GBP/USD is holding near session highs in NorAm afternoon trading, +0.66% at
1.2849, a smidge below Tuesday's NorAm high at 1.2850. The pound is trekking
higher after UK employment and wage data hinted inflation reduction may be on a
slower path than recently expected. UK CPI Wednesday is in focus, as is U.S.
CPI, for clues on the evolution of UK and U.S inflation, and UK-U.S. rate
differentials which is currently the primary determinant of GBP/USD movement.
    The lower PPI release put further downward pressure on U.S. Treasury yields.
The belly of the curve fell nearly 7 basis points, while the longer-end fell 4-6
bps.
    Equities reacted positively to lower inflation and yields. The Nasdaq
rallied 2.3%, and the S&P 500 gained 1.4%, nearing the NorAm close.
    Gold slipped a touch falling 0.17% to $2,466, but remains close to its
all-time-high at $2,483 put in on July 17. Bitcoin rose 3.92% to $61.2k and ETH
rose 1.1% to $2,709 as lower yields supported cryptos.
    
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 (Editing by Terence Gabriel
Paul Spirgel is a Reuters market analyst. The views expressed are his own.)
 ((paul.spirgel@thomsonreuters.com))