Dollar Rallies, US PPI Surprises Markets
The US dollar index (DXY) strengthened to around 98.5 on Wednesday, its highest level since late April, after US producer inflation data triggered a rise in yields and reinforced the narrative of higher interest rates for longer.
Producer Price Index (PPI) data showed wholesale inflation rose 1.4% (MoM) in April, well above the 0.5% forecast, while core PPI rose 1.0%. Markets believe upstream price pressures have the potential to extend the Fed's tighter policy phase, maintaining support for the dollar through the yield channel.
In the major forex markets, EUR/USD weakened to around 1.1708, pressured by a stronger dollar and rising US yields. GBP/USD fell to the 1.3520 area, with sterling also overshadowed by resurfacing UK political and fiscal concerns.
USD/JPY moved up to around 157.9 as the yield differential widened, although the risk of intervention by Japanese authorities remained a restraining factor on the upside. Meanwhile, AUD/USD weakened to around 0.7255, as a stronger dollar offset support from commodities and flows into riskier assets.
The next movement will be largely determined by the continuation of the repricing of the Fed's policy expectations post-PPI, the direction of Treasury yields, as well as signals from other central banks and geopolitical risks that continue to influence energy prices. (arl)*
Source: Newsmaker.id
