Dollar Slips as PPI Test Looms
The US dollar weakened against all major G10 currencies on Wednesday as expectations for a Federal Reserve rate hike this month continued to ease following softer US inflation data.
The Bloomberg Dollar Spot Index slipped 0.1% after falling 0.4% on Tuesday. The decline came after US consumer prices dropped in June for the first time in six years, signaling that inflationary pressure may be starting to cool.
However, markets are not fully relaxed yet. Investors are now waiting for the US Producer Price Index, or PPI, due later on Wednesday. Fed Chairman Kevin Warsh also warned in congressional testimony that slower inflation in June does not mean the central bank’s inflation mission is complete.
Analysts said the strongest phase of the dollar rally may now be over. Cooler-than-expected US inflation has reduced expectations for further Fed hikes, while the yield support behind the dollar has started to fade. The 2-year Treasury yield was steady around 4.19% after falling nine basis points in New York.
In currency markets, USD/JPY edged lower to 162.06, AUD/USD rose to 0.6987, NZD/USD climbed to 0.5821, and EUR/USD advanced to 1.1441. Meanwhile, USD/CNH slipped to 6.7686. For markets, the dollar may remain under pressure if PPI also confirms softer inflation, but it could rebound if producer prices show that inflation risks are not over.
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