The U.S. dollar gained across global markets on Thursday following data showing that U.S. producer prices rose more than anticipated in July. The increase, driven by higher costs for both goods and services, points to a potential broadening of inflation pressures in the months ahead.
Earlier this week, reports indicated that consumer prices also increased more than expected in July, encouraging traders to anticipate interest rate cuts from the Federal Reserve in the near term. However, Thursday’s producer price report highlighted ongoing inflationary pressures, raising questions about the timing and scale of potential rate reductions.
Analysts note that while a September rate cut remains on the table, aggressive policy easing—such as a 50 basis point reduction—is unlikely given the economy’s current strength. St. Louis Fed President Alberto Musalem emphasized that the U.S. remains near full employment, with inflation above the Fed’s 2% target, making a substantial rate cut unnecessary at this stage.
Market participants are now recalibrating expectations, with some economists suggesting that only one or two moderate rate cuts may be feasible later this year, rather than the three consecutive cuts previously speculated. Despite these concerns, traders continue to largely price in a September reduction, pending guidance from the Fed’s upcoming Jackson Hole Economic Symposium.
The dollar index, which tracks the currency against a basket of global peers, rose 0.5% to 98.25. The euro weakened 0.5% to $1.16413, while the British pound fell 0.3% to $1.35325. Analysts caution that the recent rally may be short-lived and largely dependent on upcoming Federal Reserve communications.
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IMAGE: Reuters
