The US dollar Index moved slightly higher immediately after the release of the Producer Price Index (PPI) on Wednesday but has since then eased. Throughout the week, the greenback has lost steam against most of its major peers, with the US dollar Index expected to post further losses.
US PPI for final demand rose 2.2% on a yearly basis in September, up from the 2% increase in August, according to the data published by the US Bureau of Labour Statistics on Wednesday. This reading beat market expectations of 1.6%.
The annual Core PPI rose 2.7% in September, higher than the August reading and analysts’ consensus of 2.2% and 2.3%, respectively. The Core PPI increased 0.3% month on month.
US dollar weakens against most of its rivals
Th USD continued to weaken against its rivals on Tuesday, with the US Dollar Index closing the fifth straight day in negative territory. Apart from Wednesday’s Producer Price Index (PPI) data for September, Federal Reserve (Fed) officials will be delivering speeches before the release of the FOMC Minutes later in the day (18:00 GMT).
Developments in Israel and Gaza
In a press conference late Tuesday, US President Joe Biden described the Hamas attacks “an act of sheer evil” and announced that they were sending additional military assistance to Israel. US Defence Secretary Lloyd Austin said that they sent a carrier strike group to the eastern Mediterranean Sea. Despite the developments in Israel and Gaza, the USD remained focused on the economic data. With many countries not wanting the violence to escalate further, and a proxy war being out of the picture, safe havens are weakening, with the Swiss Franc and the greenback declining to lower levels.
Reduced expectations for more rate hikes by the Fed
The US dollar weakened on Tuesday after several comments from Federal Reserve officials signalling that the Fed is finished with its rate hiking cycle. Reduced expectations for more interest rate hikes by the Fed, dovish remarks from Fed officials, expressing worries about higher long-term US Treasury yields, have pushed the dollar down.
With easing inflationary concerns, as the Nonfarm Payrolls (NFP) last Friday showed that wage growth remained moderate, markets expect a shift in the central bank’s policy stance.
Atlanta’s Fed President Raphael Bostic’s comment that the current policy is already restrictive, along with similar dovish commentary from other Fed officials, suggests a cautious approach to further tightening. However, Federal Reserve Governor Michelle Bowman said on Wednesday that despite the fact the inflation has eased, the central bank will probably need to tighten monetary policy further to restore price stability.
September meeting’s US Federal Open Market Committee (FOMC) Minutes released later on Wednesday is anticipated to have a limited impact on financial markets. Market participants will now turn their attention towards the upcoming Consumer Price Index (CPI) data on Thursday and will look for any signs of further dollar weakness. Analysts are expecting the US Dollar Index (DXY) to print more losses later this week.