• USD strengthens against basket of currencies
  • Higher PPI increases chances of more rate increases
  • CAD drops despite Bank of Canada announcing higher rates

The USD strengthened yesterday as data indicated that United States wholesale prices grew at a faster rate than expected in June. This increased the likelihood of inflation escalating, which in turn increased the odds of another rate hike by the Fed.

The US dollar index, a measure of the strength of the USD against a basket of six of the most important global currencies, increased to 94.19 (+0.36%).

The Department of Labor announced there was a 0.3% increase in its Producer Price Index (PPI) for final demand in June.

During the year through June, the PPI increased by 3.4% after growing 3.1% in May. This was the largest yearly increase in more than six years, and the Fed might well decide on stricter monetary policy to counter inflationary pressure.

A weak Euro further strengthened the USD after it appeared that ECB members cannot agree when to increase rates. Some reportedly mentioned an increase as early as July next year, while others said it was unlikely to happen before the fall of 2019.

The EUR/USD dropped by 0.33% to $1.71705. The Swiss franc and the yen also came under pressure. The USD/JPY traded 0.83% higher at 111.91, while the USD/CHF strengthened by 0.30% to 0.9923.

The USD also strengthened by 0.26% against the CAD despite the Bank of Canada (BOC) increasing interest rates. The BOC said it expected 2.8% GDP growth this year. Analysts described this figure as “optimistic” and predicted that the CAD would continue weakening.

In a note to clients, TD Securities wrote: “As things stand today, the 2.8% predicted growth for 2018 Q2 looks a touch optimistic… We remain biased for USD/CAD to re-test its 2018 highs in the coming weeks and months.”

The GBP/USD, meanwhile, dropped to 1.3220 (-0.42%).


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