US Dollar, Federal Reserve, PPI, DXY Index, Treasury Yields – Talking Points
- The U.S. dollar Strengthening continued today after Treasury yields surged
- PPI data shows an economy with rebuilding price pressures
- The Fed reminded markets of possible outsized rate hikes. Where for U.S. dollar?
Trade Smarter – Sign up for the DailyFX newsletter
Receive timely and compelling market commentary from the DailyFX team
Subscribe to Newsletter
The US dollar jumped higher overnight after two Federal Reserve spokesmen touched on the prospect of a 50 basis point hike and a rebound in corporate inflation.
Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard both indicated that they would consider raising the Fed’s interest rate by 50 basis points at the late March meeting.
Both board members previously announced their restrictive stance. Swaps and futures markets have priced in just 25 basis points over the next two sessions.
January Producer Price Index (PPI) data came out hot at 0.7%m/m, above 0.4% exp and -0.5% previously. That put the annual print at 6.0%y/y, beating the forecast of 5.4%.
Similarly, the core metric also gained momentum, with the PPI excluding food and energy rising 0.5% over the past month versus 0.3% exp and 0.1% previously. The heat in the PPI numbers follows the CPI data seen earlier in the week which also accelerated again in January.
Housing Starts and Building Permits missed slightly, hitting 1309k and 1339k respectively in January. Initial jobless claims were slightly lower at 194,000 for the same month, while ongoing claims were in line with expectations at 1,696,000.
The solid data pushed Treasury yields higher across all maturities, with the back end posting the most gains. This caused the closely watched yield spread between 2 and 10 to drop to -0.78% after trading at -0.88% this week, a level not seen since the early 1980s.
The higher yields seemed to support the greenback as it hit six-week highs in EUR/USD, USD/JPY, GBP/USD, AUD/USD and NZD/USD as well as the DXY index.
Later today we will hear from Richmond Fed President Thomas Barkin and Federal Reserve Governor Michelle Bowman. The level of their hawkishness is being scrutinized by the market and could move the “big dollar”.
Recommended by Daniel McCarthy
How to trade EUR/USD
DXY, (USD) INDEX, 2 YEAR AND 10 YEAR TRESUTIES AND 2S-10S CURVE
Chart created in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @DanMcCathyFX on twitter
DailyFX provides forex news and technical analysis on the trends affecting the global currency markets.
Comments are closed.