After taking a beating during yesterday’s session following the release of cool inflation data for the month of June, the United States Dollar attempted to recover some ground today but is still in negative territory.
Overview
Drawing contrast with yesterday’s CPI numbers, today’s Producer Price Index figures for June came in, rather unexpectedly, hotter than predicted and not in line with the disinflation suggested by yesterday’s report. All data points – monthly, annual, and core – showed producer prices not only grew but grew more than expected last month. Monthly final demand grew 0.2%, and annualized core (excluding food and energy prices) notched at 3.0%, far above the expected 2.5% growth.
If not for yesterday’s CPI, these numbers would likely have a much larger impact on the Dollar, but as it stands yesterday’s report was so cool that the USD reaction is rather muted. Treasury yields initially spiked higher on the release at 8:30 this morning but have since come back down, and the initial Dollar-positive move is already pulling back. Markets today, in a rather out-of-character development, seem to have remembered that one data release does not fall out of the proverbial coconut tree – PPI exists in the context of all that has come before, and in such context, today’s release doesn’t appear as hot as it might. Traders are currently discussing that June PPI does actually fall in line with a core PCE inflation rate of 0.16%, which is well within the Fed’s current range of comfortability. Several of the main components of that PCE inflation gauge were fairly benign, giving traders continuing optimism that a September rate cut is coming down the pipeline.
Markets are also nervously looking at the beginning of Q2 profit releases, starting with the large US banks this morning and through next week. Tech stocks were unexpectedly routed during trading yesterday’s trading session, taking what would ordinarily have been an ebullient stock market in response to CPI and making equity performance negative.
What to Watch Today…
- Monex USA Online is always open.
JPY ⇑
Japanese Yen, after posting a gain of nearly two percent against USD during yesterday’s session and drawing rumors of an intervention by currency officials, is once again moving dramatically stronger this morning. While both Bank of Japan Governor Kasuo Ueda and Deputy Finance Minister Masato Kanda refused to comment on yesterday’s potential intervention, BoJ accounts show that the central bank may have used the equivalent of $22 billion to prop up the currency. This morning’s sharp moves are, once again, likely to trigger market speculation on a further intervention move.
GBP ⇑
Pound Sterling, outperforming its G10 peers today, has gained a further 0.4% against USD after running up the score during yesterday’s USD rout. GBP is currently trading at its year-to-date high and its strongest level since the end of July 2023. UK GDP was released, albeit to little fanfare, yesterday morning, and showed the economy grew more than expected both last month and last quarter. UK CPI is due out next Wednesday, and could show that headline annual inflation has dipped below the Bank of England’s 2% target, following an unexpected resurgence in April and May. GBP is also at its strongest level against EUR since August of 2022.
