- The US producer price index (PPI) is predicted to remain steady at 3.3% year-on-year in August, similar to the growth seen in July.
- Many anticipate that the Federal Reserve will lower its policy rates in September, with a growing chance for a 50 basis point cut.
- August’s PPI is unlikely to significantly affect the US dollar ahead of the Consumer Price Index (CPI) release on Thursday.
The Bureau of Labor Statistics (BLS) is set to publish the August PPI on Wednesday, just one day prior to the CPI data for the same month, which is due on Thursday.
Both PPI and CPI serve as inflation indicators; however, CPI is more focused on consumer prices, while PPI measures the value of goods and services from the producer’s perspective. It’s generally assumed that increases in PPI will eventually be seen in the CPI as higher prices from producers are passed onto consumers. Being released before the CPI makes it a potential early signal of rising inflationary pressures.
What do you anticipate from the upcoming PPI report?
Expectations are for producer inflation to rise at an annual rate of 3.3% in August, echoing similar figures from July. Core PPI, which leaves out the erratic food and energy sectors, is anticipated to increase by 3.5% year-on-year, down from the 3.7% increase observed previously. Monthly, both PPI and core PPI are projected to advance by 0.3%.
This could lessen the immediate effect on the US dollar since CPI reports usually wield more influence on the financial markets, with their release scheduled a day after the PPI figures.
Inflation is one of the key factors guiding the Federal Reserve’s policy decisions. Generally, central banks lean toward tight monetary policies in response to rising inflation, while easing may occur when pressures diminish.
Given the uninspiring employment data from last week, market players seem to have already priced in anticipated interest rate cuts for the Fed’s upcoming meeting. The current discussion centers on whether the Fed will opt for a 25 or 50 basis point reduction and whether expectations for the larger cut may build before the announcement.
Moreover, the BLS revealed a preliminary estimate on Tuesday, indicating a revision of the national benchmark for non-farm employment in March 2025 could reduce employment figures by 911,000.
How does the US Producer Price Index affect EUR/USD?
Leading up to key inflation reports, market participants have largely adjusted their expectations for interest rate cuts when the Fed convenes on September 16-17. As per the CME FedWatch tool, the likelihood of a 25 basis point cut sits at 88.2%, while 11.8% anticipate a 50 basis point decrease.
Given the current communication blackout for Fed officials—policymakers typically avoid public discussions about monetary policy about two weeks before scheduled meetings—Chairman Jerome Powell’s statements at the Jackson Hole Symposium have already set the stage for market expectations around rate cuts.
Powell emphasized the challenges facing the Fed, like how US President Trump’s tariffs might push inflation higher, in contrast to how his immigration policies could weaken the labor market.
Market players initially focus on headline monthly and annual figures before examining core data. Typically, a reading that exceeds expectations can drive demand for the US dollar as it diminishes the likelihood of future rate cuts; conversely, a lower figure can have the opposite effect.
Valeria Bednarik, Chief Analyst at FXSTREET, mentioned that the EUR/USD pair saw some demand for the US dollar as it approached the 1.1700 level before the PPI announcement. Even after hitting a recent peak of 1.1780, the market was unable to glean significant momentum before the NFP release. The forthcoming levels to watch are around 1.1700 as immediate support.
She further added, “If the price slips below that support level, sellers may test the resolve of buyers around 1.1650, which is viewed as a comfort zone for the pair. A clear break below this could expose the 1.1600-1.1610 range, with 1.1900 becoming the next target.”
