New York FX Market: Bloomberg Dollar Index Rebounds as US Producer Prices Post Biggest Three-Year Gain

Deep News
08/15

The Bloomberg Dollar Index rose alongside US Treasury yields on Thursday as producer prices recorded their largest increase in three years, prompting traders to slightly reduce bets on Federal Reserve rate cuts in September.

The Bloomberg Dollar Index gained 0.4%, halting a two-day decline.

US July PPI rose 0.9% month-over-month, marking the largest increase since June 2022.

"Tariffs are pushing up transaction prices between businesses, which will eventually pass through to consumer prices," said Bill Adams, Chief Economist at Comerica Bank.

Adams added: "This report adds another hurdle to a Fed rate cut in September. However, upcoming employment market data will have a greater impact on the Fed's next policy decision."

US Treasuries fell across the board, with two-year yields rising 6 basis points to 3.73%.

Traders are pricing in approximately a 90% probability of a 25 basis point Fed rate cut in September.

The Bloomberg Dollar Index one-month risk reversal indicator rebounded from recent bearish lows, with put options carrying about a 12 basis point premium over calls.

The yen reversed earlier gains following the US PPI report release, after Treasury Secretary Yellen commented that the Bank of Japan was behind the curve on addressing inflation and expected the central bank to raise rates.

USD/JPY rose 0.3% to 147.79, having earlier touched its lowest level since July 24.

USD/JPY one-week risk reversals showed yen call options with about an 87 basis point premium, compared to just 25 basis points on Wednesday.

EUR/USD fell 0.5% to 1.1649, declining for a third consecutive day. Near-term resistance sits around the August high of 1.1730 reached on Wednesday.

JPMorgan strategists expect EUR/USD may test 1.22, partly due to diverging growth prospects between the US and other economies.

GBP/USD reversed gains to decline 0.3% to 1.3537, having touched a one-month high of 1.3595 during the session.

The UK's second-quarter economic performance exceeded expectations, with the fastest growth among G7 nations in the first half of the year.

USD/CAD rose 0.4% to 1.3809.

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