US dollar surges despite higher inflation
What’s happening:-
The US dollar moved higher on Thursday following the release of data on producer prices.
What happened:-
Data released on Thursday showed that US producer prices rose higher than projected in July.The latest data followed the release of a higher-than-expected rise in consumer prices on Tuesday
Why it matters:-
Although the flowthrough of tariff costs has been limited so far, there are wide concerns about the US facing high inflation rates as the year progresses.
Is the dollar falling or rising
US producer prices surged 0.9% in July, picking up significantly from the previous month’s flat reading. The figure also came in much higher than market estimates of 0.2%. The latest rise in producer prices was the steepest since June 2022, with cost of services up 1.1%, driven by a 3.8% rise in margins for machinery and equipment wholesaling. Annual core producer inflation also accelerated to 3.7% in July, from 2.6% in the previous month.
The latest CPI (consumer price inflation) data released on the previous day showed that core inflation had risen to 0.3% in July, surpassing June’s 0.2% rise. This was the largest gain in six months. Annual core prices rose 3.1% in July, up from 2.9% in the previous month.
Expectations of inflation accelerating as the year progresses dampened speculations of outsized interest rate cuts by the Federal Reserve, which supported the US dollar.
Dollar price now
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.5% to reach 98.25 on Thursday. The EUR/USD forex pair fell around 0.4% to 1.1649, while the GBP/USD slipped around 0.3% to 1.3530.
The USD/JPY recorded losses earlier in the session after US Treasury Secretary Scott Bessent suggested the Bank of Japan to hike interest rates. The forex pair recovered in the latter part of Thursday’s session
Dollar today
What to watch:-
Investors will continue monitoring tariff-related announcements from the Trump administration.
Data on import prices (1630 UAE Time), retail sales (1630 UAE Time) and consumer sentiment (1800 UAE Time) will remain in focus. Retail sales in the US, which rose 0.6% in June, are expected to climb by 0.5% in July, while US import prices are expected to remain flat, following a 0.1% rise in June. Analysts expect the University of Michigan’s consumer sentiment index to improve to 62 in August, from 61.7 in the previous month.
Markets will also watch the annual Jackson Hole central banking symposium, scheduled for next week, which is expected to provide further insights into the Fed’s future monetary policy moves.