US Dollar Forecast: DXY Falls as Treasury Yields Slip Below 4% After Hot PPI Data

Dollar Gives Back Early Gains as Treasury Yields Slip Below 4%

The U.S. dollar is trading nearly flat against a basket of major currencies late Friday after giving back earlier gains. The greenback rose early in the session, shortly after the release of hotter-than-expected producer price (PPI) data for January and on concerns about simmering tensions between the U.S. and Iran. However, it was unable to hold on to those gains after the 10-year U.S. Treasury yield fell below 4% on stagnation risk.

The dollar index (DXY) rose to 97.851 after the PPI release, before turning lower. At 18:51 GMT, DXY is trading 97.645, down 0.137 or -0.14%. The DXY also headed for a 0.60% monthly gain, its first monthly increase in five months.

Hot PPI but Not All the Numbers Were Bad

The PPI for final demand rose 0.5% in January after advancing by a downwardly revised 0.4% the prior month. Experts polled by Reuters had forecast the PPI increasing by 0.3% after a previously reported 0.5% rise in December. Core PPI jumped to 0.8%, higher than the 0.3% estimate. The previous month was revised lower to 0.6%.

The markets are starting to show signs of a real deep concern about inflation and growth so far this year. In some pockets of the economy, there’s this feeling that inflation will moderate, but it’s not showing up in either the consumer or producer inflation numbers.

Nonetheless, taking a closer look at the headline results, there were signs of improvement. In my opinion, the headline increase was surprising, but the alarm was sounded by the trade services sector, “a category the BLS notes is calculated in a way that does not capture true price changes in real time” CNBC reported. Not all the numbers were bad. There are signs of price moderation.

Fed on Hold Until June as Rate Cut Bets Build

Looking at the CME’s FedWatch Tool, the U.S. Federal Reserve is expected to keep rates where they are until at least June due to worries about sticky inflation. A weakening jobs market, however, is leading Fed Funds traders to price in about 60 bps of rate cuts by the end of the year.

Iran Tensions Provide Overnight Bid but No Deal in Sight

The greenback rose overnight on a safe haven bid on concerns about tensions between the U.S. and Iran. According to Reuters, the two nations made some progress in negotiations over Tehran’s nuclear program on Thursday, mediator Oman said. But with no signs of a deal or even the framework of a deal, there is nothing to show after hours of talks that could avert potential U.S. strikes amid a massive military buildup in the region.

Muted Price Action as Traders Weigh Tariffs, Geopolitics and Inflation

DXY traders had a lot to assess this week, but overall, the price action has been muted as traders gauge the impact of Trump’s new tariffs after the U.S. Supreme Court shut down Trump’s emergency tariffs, geopolitical tensions and now hot PPI numbers.

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