US Dollar Rises as Fresh Data Boosts Inflation Outlook

The US dollar climbed against other major currencies on Thursday as investors became more confident that the US inflation is picking up. The improved inflation outlook supported the Federal Reserve’s case for an interest rate increase before the end of the year.

A fresh reading for a major inflation indicator that was released by the US Bureau of Labor Statistics earlier today has revealed a stronger rate than analysts expected. The producer price index rose 0.4% in September after increasing 0.2% in August, which matched expectations. On the other hand, the core producer price index, which excludes foods and energy, rose 0.3% to beat estimates of a 0.2% gain.

The bureau added that producer prices increased 2.6% over the last twelve months. Even after excluding foods, energy, and trade, producer prices had a 2.1% gain over the same period. The Federal Reserve maintains the target rate for inflation at 2.0%.

Higher producer prices often take some time before reflecting on consumer prices, which are more significant for the US central bank. However, the increase reported today signaled that consumer prices may have more gains in coming months.

Data for the consumer price index and retail sales in the United States will be released tomorrow. Analysts expect the consumer price index to show a 0.6% gain, while core consumer prices may increase 0.2%. Meanwhile, retail sales may climb 1.7%.

Higher inflation could prompt the Federal Reserve to raise its interest rate for the third time this year. Minutes of the Federal Open Market Committee meeting in September revealed that policymakers will be looking for more signs of inflation before their following meeting.

The CME Group FedWatch tool, which tracks futures prices of federal funds, showed an 86.7% chance of an interest rate hike before the end of the year. The Federal Open Market Committee will meet again on November 1 and December 13.

EUR/USD traded at 1.1842 as of 14:40 GMT on Thursday after dropping to 1.1832 at 14:00 GMT, the pair’s weakest level since yesterday. EUR/USD began trading today at 1.1865.

The Dollar Index, which tracks the performance of the US currency against a basket of its major peers, rose to 93.13 as of 14:37 GMT today from 93.01 yesterday.

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