Dollar a touch firmer

The dollar popped higher yesterday after stronger than expected US producer price inflation data, though its gains were modest and are proving relatively short-lived for now. There’s plenty more US economic data due today though, including July retail sales, which will have a bearing on the near-term direction for the currency. It is currently trading at around $1.1675 and $1.3550 against the euro and sterling respectively, leaving it not much ahead of yesterday morning’s levels. EURGBP is a touch firmer this morning at around £0.8615, having dipped below £0.86 for a time during yesterday’s session. 

The stronger than forecast US data led to a modest paring back of expectations for a Fed rate cut next month  – the market still sees about a 70% chance of a 25bps move – which in turn contributed to a 5-6bps increase in US yields across the curve, with German and UK yields also moving higher. In equity markets, the main US indices were largely unchanged on the day, while European stocks moved ahead by almost 1%.

Producer output prices in the US rose by 0.9% in July (versus +0.2% expected) –  the largest month-on-month increase in just over 3 years – pushing the annual increase up to 3.3% from 2.4% in June. Core output prices (which excludes some volatile components) also rose more than expected, increasing by 0.6% on the month and by 2.8% on the year (up from 2.5% in June).

The second estimate of Euro Area GDP in Q2 was unchanged from the preliminary estimate with growth slowing to 0.1% q-o-q from 0.6% in Q1, the latter having been partially boosted by a jump in exports to the US ahead of expected tariffs. High-frequency data, including the latest PMIs, point to similarly subdued growth again in Q3.

As mentioned, there’s a heavy schedule of US economic due today, including retail sales, consumer confidence, industrial production and import & export prices. Trump and Putin meet in Alaska – any progress in the talks might provide a modest boost to the euro all else equal.