NEW YORK: The dollar slid on Wednesday after hotter-than-expected data on US producer prices showed underlying inflation moderated a bit more in September, providing further evidence for the market to reason the Federal Reserve is done hiking interest rates.
The producer price index (PPI) for final demand rose 0.5% after accelerating by an unrevised 0.7% in August. Economists polled by Reuters forecast the PPI to gain 0.3%. Over the past 12 months the PPI increased 2.2% after advancing 2.0% in August.
But after stripping out food, energy and trade services, PPI gained 0.2% last month, the same margin as in August. In the 12 months through September, the so-called core PPI increased 2.8%, or less than a 2.9% advance in August.
“There’s optimism that the disinflation process is still intact despite some of the hot numbers that we got today,” said Edward Moya, senior market analyst at OANDA in New York, adding that building material margins had impacted the data.
“The market has really become confident that the Fed could be done raising rates” after a “steady dose of dovish Fed speak” this week, Moya said.
The dollar index, which tracks the US currency against six others, touched a two-week low of 105.550, while the euro rose to its highest since Sept. 25 at $1.0634.
The dollar’s weakness came from another decline in Treasury yields as bond prices rallied on the Fed’s recent softer stance on future rate hikes. Bond yields move opposite to their price.
The yield on 10-year Treasuries was last down 5.2 basis points at 4.604%, an almost 30 basis point drop from a 16-year high of 4.887% last Friday after a strong jobs report.Investors await the release of minutes later on Wednesday from the last Fed meeting of policymakers, and a key inflation print on Thursday for direction on the future path for rates.
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