Inflation pressures remain strong

The U.S dollar advanced against a basket of currencies yesterday after data showed producer prices posted their largest annual increase in more than a decade in the 12 months through July, suggesting inflation pressures remain strong.

The dollar index, which measures the greenback against a basket of six rivals, was 0.1% higher at 93.019. U.S. producer prices increased more than expected in July, a Labor Department report showed on Thursday, suggesting inflation could remain high as strong demand fueled by the recovery continues to hurt supply chains.

The producer price index (PPI) for final demand increased 1.0% last month after rising 1.0% in June. In the 12 months through July, the PPI jumped 7.8%, a record high since the measure was introduced just over a decade ago. Separately, data showed the number of Americans filing claims for unemployment benefits fell again last week as the economic recovery from the COVID-19 pandemic continued.

Investors remain vigilant for any signs of inflation running too hot since it could potentially spur the Federal Reserve to pull forward its the timing on tapering of asset purchases as well as interest rate hikes. 

The U.S dollar held near the top of a tight overnight range as fresh data renewed pressure on the Fed to shift away from low rate policy. The greenback has broadly strengthened since mid-June - hitting its highest since April 1 at 93.195 prior to Wednesday's data - when the U.S Federal Reserve flagged that it was gearing up for earlier-than-expected rate hikes and amid evidence that the release of pent-up demand in a rebounding economy was fueling price rises. Yesterday's data helped the greenback shake off some of the weakness from the prior session when data showed U.S consumer price increases slowed in July, easing concerns thе the Federal Reserve will imminently signal a scaling back of bond purchases. 

Yesterday's huge upside PPI surprise follows solid but moderating CPI gains, leaving a mix that will keep inflation concerns alive even as economists will continue to expect a slowing in monthly price gains into year-end. Sterling fell 0.5% on the day against the broadly stronger U.S dollar as analysts expected the Bank of England to make no moves in its monetary policy after official data showed Britain's economy grew in line with expectations in the second quarter.

The eurozone posted a large surge in its trade surplus with the rest of the world in June from May, data released by the EU statistics office showed.

Euro - EUR

The single currency gained as the eurozone posted a large surge in its trade surplus with the rest of the world in June from May, data released on Friday by the European Union statistics office showed, as exports grew faster than imports on the month. Eurostat said that the 19-country bloc recorded in June a surplus of 18.1 billion euros. Overall, the EUR/USD traded with a low of 1.1722 and a high of 1.1747 before closing the day around 1.1728 in the New York session.

Yen - JPY

The Japanese Yen traded lower after U.S data showed producer prices posted their largest annual increase in more than a decade in the 12 months through July, suggesting inflation pressures remain strong. The producer price index (PPI) for final demand increased 1.0% last month after rising 1.0% in June. Overall, the USD/JPY traded with a low of 110.29 and a high of 110.2 before closing the day around 110.39 in the U.S session.

British Pound - GBP

The British Pound was little changed yesterday as analysts expected the Bank of England to make no moves in its monetary policy after official data showed Britain’s economy grew in line with expectations in the second quarter. The Office for National Statistics said the economy grew by 4.8% in the second quarter. Overall, the GBP/USD traded with a low of 1.3793 and a high of 1.3876 before closing the day at 1.3806 in the New York session.

Canadian Dollar - CAD

The Canadian Dollar edged lower against its U.S counterpart as data suggesting U.S inflation pressures remain strong raised pressure on the Federal Reserve to reduce economic stimulus and investors braced for a Canadian federal election. Adding to pressure on the loonie, the price of oil, one of Canada's major exports, settled 0.2% lower. Overall, USD/CAD traded with a low of 1.2497 and a high of 1.2531 before closing the day at 1.2523 in the New York session.

Australian Dollar - AUD

The Australian Dollar fell against most of its major peers in today’s Asia-Pacific trading session. Investors started to hit the sell button on the Aussie Dollar yesterday after Australia’s capital city, Canberra, started a snap lockdown. Weakness accelerated overnight as US traders digested the news. The new lockdown will affect nearly 400,000 people. Overall, AUD/USD traded with a low of 0.7326 and a high of 0.7362 before closing the day at 0.7331 in the New York session.

###

All information has been prepared by TraderFactor or partners. The information does not contain a record of TraderFactor or partners prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of futures performance.