Dollar Index Renews Gains As US PPI Data Flag Concerns Of Sticky Inflation

GBP/USD slips following hot US PPI inflation data

GBP

Amid an absence of economic data releases, The Pound (GBP) held steady on Thursday as it was supported by fading Bank of England (BoE) interest rate cut bets. In the wake of some upbeat UK data this week, namely the release of the latest domestic GDP data, investor speculation waned surrounding the possibility of an upcoming BoE interest rate cut. January’s data confirmed that the UK had returned to growth at the start of this year, rising from -0.1% to 0.2%, and reaffirmed the narrative that the BoE will likely ‘keep interest rates higher for longer’. The Pound Sterling tumbled against the US Dollar on Thursday after the US Department of Labour announced a rebound on inflation on the producer side that could dent the Federal Reserve’s easing policy. Therefore, the GBP/USD edges lower, trading at $1.2738, down 0.38%.

No Major Data

"Euro-Dollar Breakout Coming": SEB

EUR

The Euro has recovered back above $1.09 in the February-March period as investors grow more confident the Federal Reserve will cut rates in June. But these expectations took a knock following this week's above-consensus CPI and PPI inflation readings from the U.S. that show the disinflation trend is reversing. The Dollar has strengthened, and U.S. bond yields have risen, suggesting that investor confidence in a June rate cut is receding. Analysts at SEB, the Scandinavian lender and investment bank, say we are approaching the time for a EUR/USD breakout to lower levels. "We believe that a break of the recent range should support the USD during the spring. Furthermore, our new Fed and US growth forecasts provide less support for a higher EUR/USD in H2 and we consequently lower our forecasts for the rest of 2024," says SEB. The bank now forecasts the Euro-Dollar rate at $1.07 in one month. Analysts now expect the EUR/USD at $1.08 for Q2, $1.08 for Q3 and $1.10 for Q4 vs. previous forecasts of $1.11, $1.13 and $1.14, respectively.

Data:

Consumer Price Index (EU norm) (MoM)(Feb): 0.9%

Consumer Price Index (EU norm) (YoY)(Feb): 3.2%

Retail Sales (MoM)(Jan): Exp 0.2%

ECB's Lane speech: 14:30

US Dollar strengthens post Thursday data

USD

The US Dollar strengthened against the majority of its peers on Thursday following the release of some upbeat US economic data. Mainly, the latest PPI (producer price index) data rose from 0.3% in January to 0.6% in February, ahead of forecasts it would remain at 0.3%. The producer price inflation data bolstered USD exchange rates in the aftermath of its release, as it served to undermine speculation of a FED interest rate cut in June, just a week before the Fed’s next interest rate decision. Further aiding the ‘Greenback’ on Thursday were the latest US retail sales figures. Retail sales increased by 0.6% in February following an upwardly revised 1.1% drop in January, however, came in below market expectations of a 0.8% expansion. Although February’s index printed below forecast, the rebound in retail sales in comparison to January’s contraction pointed to an expanding US retail sector, and ultimately lifted the US Dollar. Consequently, the Dollar index renewed gains on Friday morning to 103.25 a 0.08% intraday increase.

No Major Data