US dollar mixed, markets eye Fed cuts after soft inflation data
By Gertrude Chavez-Dreyfuss and Amanda Cooper
NEW YORK/LONDON (Reuters) - The U.S. dollar was narrowly mixed on Wednesday, with no definitive direction, after data showed producer prices unexpectedly fell in August, cementing expectations that the Federal Reserve will resume cutting interest rates later this month.
The dollar was slightly down against the yen at 147.31 following the data, while the euro was flat at $1.1706. Before the data, the U.S. currency was trading moderately up on the day against both currencies.
A Labor Department report showed the Producer Price Index for final demand fell 0.1% on a monthly basis, after a downwardly revised 0.7% jump in July. Economists polled by Reuters had forecast the PPI would rise 0.3% after a previously reported 0.9% surge in July.
But the PPI advanced 2.6% on an annual basis in August, compared with a 3.3% gain expected by economists polled by Reuters.
"Odds on a half-point move have risen, but remain extremely low. The economy has slowed, but isn't showing signs of crashing, and may even accelerate in the months ahead," said Karl Schamotta, chief market strategist, at Corpay in Toronto.
"Inflation pressures seem subdued, but risks are tilted to the upside. For most market participants, a quarter-point move remains the most plausible base case."
Following the data, fed funds futures are pricing in a 90% chance of a standard 25-basis-point cut this month and a 10% chance of 50-bp rate decline, according to the CME's FedWatch. That was at 93% and 7%, respectively, late on Tuesday.
With PPI out of the way, investors are now focused on the consumer prices index for August due out on Thursday. A Reuters poll showed headline CPI of 0.3% last month and a year-on-year rise of 2.9%.
Meanwhile, there was no shortage of geopolitical tension overnight that spilled over to Wednesday.
Israel's attempted killing of Hamas leaders with an airstrike on Qatar on Tuesday, along with Poland shooting down drones that entered its airspace during a Russian attack in western Ukraine on Wednesday, were keeping investors nervous.
The euro rose 0.3% against the Polish zloty to 4.259 zloty, and set for its biggest one-day rise since August 11.
The dollar index, which measures the U.S. currency against six others, was down slightly at 97.74. It has fallen by 10% this year, dented by chaotic U.S. trade and fiscal policy and by growing concern about the independence of the central bank.
Markets, meanwhile, showed little reaction to a court ruling that temporarily blocked President Donald Trump from removing Fed Governor Lisa Cook, a case that is likely to end up before the U.S. Supreme Court.
Data on Tuesday also showed the economy likely created 911,000 fewer jobs in the 12 months through March than previously estimated, suggesting jobs growth was already stalling before Trump's aggressive tariffs on imports.
The data did not offer much insight into job creation since March, leaving U.S. rate expectations unchanged for now.
Currency
bid
prices at
10
September
06:46
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 97.771 97.803 -0.02% -9.88% 97.934 97.5
index 93
Euro/Doll 1.1705 1.1709 -0.03% 13.07% $1.1731 $1.1
ar 683
Dollar/Ye 147.33 147.41 -0.09% -6.4% 147.62 147.
n 27
Euro/Yen 172.46 172.59 -0.08% 5.66% 172.9 172.
39
Dollar/Sw 0.7989 0.7976 0.16% -11.97% 0.7992 0.79
iss 62
Sterling/ 1.3534 1.3526 0.11% 8.27% $1.3567 $1.3
Dollar 514
Dollar/Ca 1.3862 1.3841 0.17% -3.59% 1.3867 1.38
nadian 32
Aussie/Do 0.662 0.6586 0.55% 7.03% $0.6636 $0.6
llar 58
Euro/Swis 0.9349 0.9337 0.13% -0.47% 0.9355 0.93
s 26
Euro/Ster 0.8646 0.8651 -0.06% 4.5% 0.866 0.86
ling 41
NZ 0.5947 0.5925 0.4% 6.31% $0.5964 0.59
Dollar/Do 22
llar
Dollar/No 9.924 9.98 -0.56% -12.68% 9.9938 9.87
rway 67
Euro/Norw 11.6175 11.6852 -0.58% -1.29% 11.692 11.5
ay 807
Dollar/Sw 9.3524 9.3787 -0.28% -15.11% 9.3977 9.30
eden 59
Euro/Swed 10.9459 10.9818 -0.33% -4.54% 10.9895 10.9
en 127
(Reporting by Gertrude Chavez-Dreyfuss in New York and Amanda Cooper in London; Editing by Aidan Lewis, Bernadette Baum and Nick Zieminski)
