U.S. Dollar Rallies After PPI Report

Key Insights

• U.S. Producer Prices increased by 11.3% year-over-year in June, providing additional support to the American currency.
• Initial Jobless Claims have started to trend higher. 
• EUR/USD managed to settle below the psychologically important 1.0000 level. 

PPI Report Exceeds Analyst Expectations

U.S. dollar gained strong upside momentum and moved to new highs after the U.S. reported that Producer Prices increased by 1.1% month-over-month in June. Analysts expected that Producer Prices would grow by 0.8%. On a year-over-year basis, Producer Prices increased by 11.3%, compared to analyst consensus of 10.7%.

Yesterday, markets made an attempt to shrug off inflation numbers. Some traders were ready to bet that inflation has peaked. Today’s Producer Prices report shows that pricing pressure remains strong. Typically, there is a lag between CPI and PPI data, so high PPI shows that CPI will remain elevated in the upcoming months.

Today’s job market data was also disappointing. Initial Jobless Claims report indicated that 244,000 Americans filed for unemployment benefits in a week, compared to analyst consensus of 235,000.  Initial Jobless Claims have bottomed below 200,000 in April.

In recent weeks, Initial Jobless Claims have fluctuated in the 230.000 – 235,000 range, so the new report shows that Initial Jobless Claims have started to rise after a period of consolidation. This report contributes to inflation worries and serves as an additional bullish catalyst for the safe-haven U.S. dollar.

EUR/USD Dives Below 1.0000

EUR/USD has finally managed to settle below the 1.0000 level and made an attempt to get below 0.9950. Obviously, many traders were ready to sell EUR/USD when the price got below 1.0000, so the sell-off was not surprising.

EUR/USD is technically oversold, but it remains to be seen whether it will find enough positive catalysts in the upcoming trading sessions as the U.S. inflation data is ugly.

Yesterday, markets believed that there was a roughly 50% probability of a 100 bps rate hike at the Fed’s meeting on July 27. Today, this probability increased to 83.3%. The expectations of an aggressive rate hike from the Fed will continue to serve as a strong bullish catalyst for the American currency.

For a look at all of today’s economic events, check out our economic calendar.