US Dollar holds ground after fresh PPI readings and Jobless Claims


  • DXY rallies further following Federal Reserve's decision, trades above 105.00.
  • US releases soft PPI figures from May and higher weekly Initial Jobless Claims.
  • US Treasury yields continue to move down and may limit the upside.

On Thursday, the US Dollar Index (DXY) continued its positive momentum, extending its recovery into Thursday's session above 105.00. This followed Wednesday's Federal Reserve (Fed) decision and as markets digested fresh Producer Price Index (PPI) figures from May and weekly Initial Jobless Claims, which showcased weaker than anticipated inflation and higher unemployment benefit requests.


The Fed kept its economic activity revisions unchanged while upgrading the Personal Consumption Expenditures (PCE) forecasts. The US economy is currently showcasing mixed signs with preliminary evidence indicating softening inflation but with a resilient labor market, which seems to have made Fed officials project fewer rate cuts in 2024.


Daily digest market movers: DXY reacts to Fed decision, PPI data

  • Federal Open Market Committee (FOMC) dot plot update on Wednesday shows just one rate cut for 2024 as the median outcome, down from the three rate cut expectation last March by Fed Officials.
  • This adjusted the market's expectations, which priced in between one or two cuts this year, indicating a longer timeline for potential rate cuts.
  • Producer Price Index (PPI) for final demand rose 2.2% on a yearly basis in May, below the market expectation of 2.5%.
  • Annual core PPI rose by 2.3%, also below market expectations.
  • Weekly Jobless Claims showed 242K in the week ending June 8, higher than initial estimates of 225K and last week's print of 229K.


DXY technical analysis: Bulls maintain control and recover SMAs


Following Wednesday’s session, indicators recovered to stand in positive terrain. The Relative Strength Index (RSI) is now above 50 midline, and the Moving Average Convergence Divergence (MACD) is printing green bars. In addition, the Index is now trending above its 20, 100, and 200-day Simple Moving Averages (SMA). This extends the bullish outlook for the US Dollar, following Wednesday’s sharp decline.

 

Employment FAQs

Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.

 

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