Dollar gains as data indicates rising US inflation with Fed decision in view

NEW YORK: The US dollar strengthened against other major currencies on Wednesday, clawing back losses from the past two sessions after data showed a more-than-expected increase in US producer prices.

The data indicates the Federal Reserve might take longer to cut interest rates amid elevated oil prices driven by the Middle East conflict. The Fed is widely expected to hold rates steady later on Wednesday.

Data from the US Labor Department showed that the Producer Price Index surged 0.7percent, while economists polled by Reuters had forecast a 3percent rise.

The dollar has strengthened overall since the US and Israel attacked Iran almost three weeks ago, reaching a 10-month high late last week as the conflict and rising oil prices drove investors into safe-haven US assets. The dollar was last up 0.42percent at 0.788 against the Swiss franc.

The euro was down 0.17percent at USD1.1518. “The PPI is not a terribly good predictor of the CPI (consumer price index) or PCE (personal consumption expenditures) but we do have a bit of a trend here of higher prices,” said Joe Trevisani, senior analyst at FX Street. “So is this really a predictor of much higher inflation? I don’t think so. However is it a good predictor or at least a warning for the Fed Absolutely.

The Fed is going to be wary of cutting rates with any type of inflation indicators that are running in the wrong direction.” The dollar index, which measures the greenback against six major peers, was up 0.26percent at 99.83, snapping two straight sessions of declines.