The U.S. Dollar has shown mixed performance as stock futures fluctuated following the latest Producer Price Index inflation data.
Overview
The PPI for final demand increased by 0.2% from the previous month, slightly above the median forecast of 0.1%. This data, coupled with a downward revision to July’s reading, has done little to alter market expectations for Federal Reserve rate cuts. Swap traders continue to project a quarter-point Fed reduction next week and 100 basis points in policy easing this year. The Buck wavered as traders assessed the implications of the inflation data on the Fed’s interest rate decisions ahead.
Additionally, markets are keeping an eye on a few economic data releases left for the week, such as Japan’s PPI and Eurozone industrial production, which could impact the Dollar’s performance. Expect more volatility as we get closer to U.S. election time and economic agendas are scrutinized more closely in upcoming six weeks. Data-wise domestically, the University of Michigan Consumer Sentiment will be released tomorrow at 10AM.
What to Watch Today…
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EUR ⇑
The Euro has been experiencing mixed signals as the European Central Bank’s (ECB) latest statement and forecasts present a nuanced outlook. While the ECB has made downward revisions to its growth forecast, which supports a dovish stance, the inflation forecast remains unchanged. The ECB still sees domestic price pressures as high and has indicated that policy rates will remain “sufficiently restrictive for as long as necessary,” which is not particularly dovish and could bring some relief to the Euro. This mixed bag of signals has left the Euro struggling for direction. The shared currency’s inability to gain clear traction suggests that traders are still weighing the implications of the ECB’s stance. The upcoming economic data releases next week in the form of the Industrial Production and Consumer Price Index will also play a crucial role in determining the path forward for the Euro.
MXN ⇑
The Mexican Peso experienced a significant jump, leading gains among major currencies, as traders looked past the approval of a controversial judicial overhaul. The Peso looked “super” for a change, ending the New York session at 1.4%, marking its biggest jump this month. The approval of the judicial overhaul, which mandates all judges to be elected by popular vote, initially sparked protests and a selloff in Mexican assets. However, traders now expect the changes proposed by President Andres Manuel Lopez Obrador to pass swiftly, with most state legislatures controlled by his Morena party. Analysts suggest that negative sentiment may have peaked in the short term, and the market is finding it challenging to price the impact of the reforms. The Peso’s recent slump coincided with the unwinding of carry trades and volatility in currency markets ahead of the US presidential vote. In the upcoming weeks, investors will closely monitor the implementation of the judicial reform and its potential economic impact, as well as any developments related to the US election.
