The dollar index (DXY00) today is down -0.09 (-0.09%) on the dovish US PPI report, which caused the odds for a Fed rate hike in September to drop to 35% from 40% on Wednesday. In addition, the 10-year T-note yield is down -7 bp, undercutting the dollar's interest rate differentials. The dollar is also being undercut by reduced safe-haven demand as there were no overnight reports of new military attacks by the US or Iran in the Persian Gulf.
Market concerns about the Middle East were also reduced slightly by news reports saying that the Trump administration is pivoting to using the naval blockade to apply economic pressure on Iran rather than new military attacks. There are no reports of any progress between the US and Iran on an agreement to reopen the Strait of Hormuz, although some ships are still getting through by turning off their transponders and hoping for the best. Dollar Ends Higher Despite Dovish US CPI Report Will Silver Hold Above Its Critical Support Level?
Keep up by reading our FREE midday Barchart Brief newsletter for exclusive charts, analysis, and headlines. Today's US PPI report was favorable. The July US final-demand PPI report of unchanged m/m and +4.7% y/y was weaker than market expectations of +0.2% m/m and +4.9% y/y.
The July core PPI report of +0.2% m/m was weaker than market expectations of +0.3%, although the year-on-year figure of +4.2% y/y was slightly stronger than market expectations of +4.1% y/y. The July PPI of +4.7% y/y was down from May's 3.5-year peak of +5.9% y/y but was still far above the Fed's inflation target of +2%. Today's PPI report followed yesterday's favorable July US CPI report, when the July core CPI fell to match the 5.5-year low of +2.5% y/y originally posted earlier this year.
Meanwhile, the nominal CPI fell to +3.4% from June's +3.5% but remained well above the 5.5-year low of +2.3% posted last year. The markets are discounting a 35% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16, down from 40% on Wednesday and 51% on Tuesday. EUR/USD (^EURUSD) is up +0.14% on dollar weakness.
Also, the euro's interest rate differentials saw a boost with today's -7 bp decline in the US 10-year T-note yield and with expectations for a Fed rate hike dipping to 35%, much lower than the chances for an ECB rate hike of 88%. The markets are discounting an 88% chance of a +25 bp ECB rate hike at its next policy meeting on September 10. USD/JPY (^USDJPY) is down -0.18% due to dollar weakness.
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