US Dollar Reversal
The US dollar has made a significant reversal, erasing a more than 100-pip intraday drop to trade back in the middle of its recent range. This move comes after a scorching hot Producer Price Index (PPI) report, which showed a sharp increase in wholesale prices.
US Dollar Key Points
- The PPI climbed 3.3%, the fastest pace since February 2025, with the core PPI also jumping by the most since 2022.
- Economists attribute the acceleration to higher import costs stemming from recent US tariffs, but the Fed is still likely to cut interest rates next month.
- USD/JPY has reversed its intraday drop to trade back in the middle of its recent 145.80-149.00 range.
PPI Report Analysis
This morning’s US PPI report revealed that wholesale prices rose sharply in July, posting their largest monthly increase in three years. The Producer Price Index jumped 0.9% month-over-month, well above the 0.2% forecast, and 3.3% on an annual basis, the fastest pace since February 2025. The core PPI, excluding food, energy, and trade services, also jumped by the most since 2022, reinforcing signs of broad-based price pressures.
Price Increases
The surge was led by services, which rose 1.1%, their largest gain since March 2022. Notable service price gains were seen in portfolio management, securities brokerage, and traveler accommodations. Meanwhile, goods prices advanced 0.7% m/m, driven by a 1.4% rise in food costs. Fresh and dry vegetables alone surged nearly 39%, with additional boosts from meats, diesel fuel, and jet fuel.
Impact on Interest Rates
Economists attribute much of the acceleration to higher import costs stemming from recent US tariffs. While businesses had largely absorbed these costs earlier in the year, many may now be passing them on to customers to protect margins. The PPI is closely watched because several components feed into the Fed’s preferred inflation gauge, the price index. Earlier this week, traders were talking about the potential for a 50bps double interest rate cut from the Federal Reserve next month, but today’s scorching hot PPI report could complicate the Fed’s plans, or at least the timeline for rate cuts.
Technical Analysis
From a technical perspective, the US dollar is now the strongest major currency on the day, just eclipsing the Japanese yen. As of writing, USD/JPY has reversed its intraday drop to trade back in the middle of its recent 145.80-149.00 range between the 100-day MA and 200-day MA. Technical traders may do well to watch that range for a potential breakout to signal the next higher-probability move for the pair.
Conclusion
In conclusion, the US dollar has reversed its intraday drop after a scorching hot PPI report, which showed a sharp increase in wholesale prices. While the Fed is still likely to cut interest rates next month, the elevated inflation reading could impact expectations for additional interest rate cuts in October and December. Technical traders should watch the USD/JPY range for a potential breakout to signal the next higher-probability move for the pair.
