PPI rises as the US dollar holds steady near its moving average, signaling cautious market sentiment

PPI Data Impacts Market Sentiment

In the United States, the Producer Price Index (PPI) for July rose by 0.9% month-on-month, significantly higher than the market expectation of 0.2%, marking the highest year-on-year increase in nearly three years. The increase covers both services and goods, highlighting that inflationary pressures may have broader and more persistent characteristics. Analysts point out that this data directly altered the market's previous bets on a potential significant rate cut by the Federal Reserve in September, shifting policy expectations from aggressive easing to relative caution.

Rate Cut Expectations Significantly Cool

Although the federal funds futures market still shows a high probability of a 25 basis point rate cut in September, the possibility of a 50 basis point cut has significantly decreased. Previously, U.S. Treasury Secretary Yellen had suggested that a substantial rate cut might be reasonable, but this idea quickly lost market support after the PPI data was released. Some institutions believe that without a significant deterioration in the labor market, the Fed's policy space for implementing consecutive large rate cuts is very limited.

Treasury Yields Slightly Rise

Driven by the unexpected PPI data, both short-term and long-term U.S. Treasury yields have risen. The 2-year yield increased to 3.73%, and the 10-year yield rose to 4.281%. This indicates that while reevaluating the Fed's interest rate path, investors' concerns about future inflation persistence have intensified. Although CPI data shows a slowdown in consumer price increases, the rapid rise in producer prices could gradually transmit to the consumer level, affecting future policy directions.

Focus on Jackson Hole Symposium

The market's attention is focused on the Federal Reserve's annual Jackson Hole global central bank symposium from August 21-23. Historically, Fed Chair Powell has often used this platform to signal policy shifts, and investors generally view it as a key reference for short-term interest rate expectations. If Powell expresses a cautious or even hawkish stance on inflation in his speech, it may further suppress rate cut expectations; conversely, dovish remarks may put pressure on the dollar.

Dollar Index Technically Stabilizes

From a technical chart perspective, the Dollar Index (DXY) has found support near the 50-day moving average (around 98.1) and has regained this level after the PPI data release. Traders are generally watching whether the index can remain above the moving average at the daily close, as this will determine the continuation direction of the short-term trend. If stabilization is successful, the Dollar Index may begin a new upward movement; if it falls below, it may retest lower support zones.

Outlook

Before the Jackson Hole symposium, the fluctuation of the Dollar Index is expected to revolve around the 50-day moving average. The interaction of policy signals and macroeconomic data will dominate market sentiment. Investors need to closely track Powell's speech language and subsequent inflation and employment data to determine the pace and extent of the Fed's rate cuts within the year. Overall, the unexpected rise in PPI provides short-term support for the dollar and also increases uncertainty in the policy path, leading the market to remain cautiously observant before important events.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.