Understanding the distribution of forecasts for the US Producer Price Index (PPI) is essential. When actual PPI data deviates from expectations, it can create unexpected market reactions.<\/p>\n
For the annual PPI, forecasts are distributed as follows: 2.7% (5%), 2.6% (18%), 2.5% (64% consensus), and 2.4% (13%). The monthly PPI expectations are: 0.4% (2%), 0.3% (42%), 0.2% (46% consensus), and 0.1% (10%).<\/p>\n
Core PPI forecasts include: annually 2.9% (5%), 2.8% (25%), 2.7% (65% consensus), 2.6% (5%); monthly 0.3% (27%), 0.2% (64% consensus), 0.1% (9%). The focus remains on Core figures rather than headline PPI.<\/p>\n
The US dollar increased broadly following a soft US CPI report. Despite initial stability, the currency saw strong bids an hour post-release, potentially influenced by unwinding of crowded short US dollar trades.<\/p>\n
Rate cut expectations have adjusted, with current pricing indicating 44 basis points of easing by year-end, down from 47 basis points. Depending on today’s US PPI report, these predictions might vary. A soft report could increase easing expectations to 50 basis points and reverse recent dollar gains, while strong data may fuel concerns of rising figures in upcoming months.<\/p>\n
We were watching the tight distribution of forecasts, which showed a strong consensus around a 0.2% monthly core reading. The actual data for May, however, came in flat at 0.0% for core PPI, a significant downside surprise. This result, which was confirmed when the Bureau of Labor Statistics released the numbers on June 13th, creates a powerful catalyst against the US dollar.<\/p>\n
We should anticipate that the 44 basis points of easing priced in after the CPI report will now increase significantly. Following this surprisingly soft producer price data, the CME FedWatch Tool shows the probability of a rate cut by September has jumped above 60%. This repricing suggests the unwinding of short dollar positions seen yesterday is likely to reverse course sharply.<\/p>\n
Given the back-to-back softer inflation reports, we see an opportunity in options markets to position for further dollar weakness. Traders could consider buying call options on currencies like the Euro or British Pound against the greenback. This strategy offers a defined-risk way to capitalize on a potential trend of renewed disinflation in the U.S.<\/p>\n
We believe the market may now be entering a phase similar to late 2023, where every soft data point fuels aggressive bets on Fed easing. Traders using interest rate futures and swaps should be prepared for a dovish repricing across the yield curve. Positioning for lower short-term rates in the coming weeks seems prudent, as the market digests this consecutive evidence of slowing price pressures.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Market watches US PPI forecasts closely; surprises may shift rate cut expectations and impact US dollar strength.<\/p>\n","protected":false},"author":62,"featured_media":16959,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-26569","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/26569","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=26569"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/26569\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16959"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=26569"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=26569"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=26569"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}