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US Dollar Strengthens As Wholesale Prices Fall

October 8, 2019 at 16:41 by Andrew Moran

One dollar note with a pyramidThe US dollar is strengthening on Tuesday after the US government reported that wholesale prices slumped last month, defying market forecasts. Investors are also waiting for the Federal Reserve minutes from its September policy meeting, as well as bracing for this week’s tumultuous renewed US-China trade negotiations in Washington.

According to the Bureau of Labor Statistics (BLS), the producer price index (PPI) slipped 0.3% in September, lower than the median estimate of a 0.1% gain. The 12-month wholesale inflation dropped from 1.8% to 1.4%, a near three-year low.

What we learned from the report is that wholesale prices for goods declined 0.4%, while wholesale food prices climbed 0.3%. The cost of services tumbled 0.2%, the cost of partially finished goods slid 0.4%, and raw-material prices endured their sharpest monthly decrease.

The data spurred immense interest because it was driven by declining gasoline prices and signaled that inflation is likely to remain lower for longer. Inflation has been below 2% for most measurements.

Elsewhere on the data front, the National Federation of Independent Business (NFIB)’s Small Business Optimism Index shed 1.3 points to 101.8, short of market expectations of 104.1. Although the index does highlight slowing growth, it did showcase strong upward trends in job creation, capital spending, and inventory investment.

On Wednesday, the Fed will release the minutes from its Federal Open Market Committee (FOMC) meeting in September. Most analysts are unsure what to expect from the minutes, but the CME Group FedWatch tool does show a consensus of another quarter-point cut to interest rates in October. This would lower the target range to 1.50% to 1.75%.

On Thursday, the US and China restart principal-level trade negotiations. The optimism surrounding the talks has already dissipated, mainly because Beijing does not want to discuss government subsidies and the US added more names to its list of blacklisted Chinese companies.

The USD/CAD currency pair rose 0.34% to 1.3334, from an opening of 1.3309, at 16:32 GMT on Tuesday. The EUR/USD fell 0.15% to 1.0957, from an opening of 1.0972.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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