Sure. Here is a rewritten and expanded version of the Forex article originally published on Mitrade titled “US Dollar Rallies After Strong PPI Data; Focus Turns to Consumer Sentiment,” by Larry Seruma. The revised version is approximately 1,100 words long and uses bullet points for clarity where appropriate.
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# US Dollar Advances Following Robust PPI Numbers, Consumer Sentiment Now in Focus
Adapted and expanded from the original article by Larry Seruma on Mitrade
The US dollar climbed higher on Friday, July 12, 2024, bolstered by stronger-than-expected US producer price data. This shift in sentiment has diverted investor attention to the strength and sustainability of the US economy, leading to anticipations about when the Federal Reserve might begin interest rate cuts. Despite recent consumer price index (CPI) data suggesting inflation is cooling, the markets are looking more closely at producer price index (PPI) data and sentiment indicators for clues about future monetary policy.
The US dollar index (DXY), which gauges the dollar against a basket of major global currencies, rose 0.1% to 104.51 during Friday’s trading session following the release of June PPI data that exceeded market expectations.
## Key Highlights
– The US Producer Price Index (PPI) rose 0.1% in June, compared to economists’ forecast of a 0.1% decline.
– The core PPI, which excludes volatile food and energy prices, also advanced 0.1%, indicating persistent price pressures at the producer level.
– The DXY moved up slightly by 0.1% to 104.51, buoyed by the PPI surprise.
– Despite signs of easing inflation in CPI data, the latest producer data suggests inflationary pressures remain.
## Producer Price Index Sparks Volatility
The rise in the US dollar was primarily triggered by the unexpected uptick in the PPI for June. This index reflects prices that domestic producers receive for their output and is often viewed by economists as a leading indicator of future consumer inflation.
This latest data showed:
– Headline PPI increased 0.1% in June, against consensus estimates that predicted a slight decline.
– On a year-over-year basis, PPI grew at a modest pace, suggesting inflationary pressures are not entirely subdued.
– Core PPI, which strips out the unstable food and energy categories, also showed a 0.1% monthly rise.
These numbers not only surprised financial markets but also suggested that the path toward achieving the Federal Reserve’s 2% inflation target may still be uneven. As a result, investors scaled back their expectations of aggressive rate cuts from the Fed in the coming months.
## Fed Rate Outlook Supports USD
Interest rate expectations are a key driver of currency valuations. The stronger-than-expected PPI suggested that the US central bank might not move as quickly as previously anticipated to cut rates.
Prior to the PPI data release:
– Traders had priced in a 25 basis point rate cut in September with approximately 95% probability, according to CME’s FedWatch tool.
– The odds have now slightly decreased, with investors becoming more cautious about an imminent policy shift.
With inflationary data remaining somewhat sticky and the labor market still showing resilience, conditions do not yet warrant an urgent easing in monetary policy. This narrative favors the greenback, as higher interest rates tend to support a currency’s value by attracting yield-seeking investors.
## CPI vs. PPI: Conflicting Signals
Earlier in the same week, the Consumer Price Index (CPI) data had painted a more dovish picture:
– CPI declined 0.1% in June, the first monthly price drop since May 2020.
– Year-over-year CPI growth stood at 3.0%, the lowest since spring 2021.
– Core CPI increased 0.2% for both headline and core readings.
These figures suggested to some that inflationary pressures were ebb
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