PPI inflation data in the US did not cause any major movements | 13 September 2024

EURUSD:

EUR/USD rallied on Thursday, rising back above the 1.1050 level as markets lean towards a risk-on stance after US Producer Price Index (PPI) data supported market hopes for the first salvo from the Federal Reserve (Fed) next week. Markets are confident that the Fed will begin its rate-cutting cycle on September 16.

EU data remains inconsequential on Friday and euro traders will take a slight breather after the European Central Bank (ECB) cut its main benchmark rate to 3.65% from 4.25% on Thursday. The University of Michigan's consumer sentiment index will give traders on the U.S. side one last look at how consumers feel about the overall U.S. economy before summarizing the trading week.

The U.S. producer price index rose to 0.2% month-on-month in August, while the core producer price index accelerated to 0.3% month-on-month. The core PPI was forecast to rise to 0.1% from the previous 0.0%, while the core PPI was forecast to rise to 0.2% from July's -0.2% contraction. Despite the short-term uptick, the annualized producer price index inflation reading was much more attractive to investors, with the annual producer price index declining to 1.7% from the prior period's revised 2.1% and coming in below expectations of 1.8%. The core annual PPI also beat expectations, remaining at 2.4% year-on-year against an expected 2.5% rise.

With PPI inflation remaining moderate and the number of people seeking unemployment benefits firmly in moderate territory, there is little to prevent the Federal Reserve's (Fed) first rate cut on September 18. The Fed as a whole is expected to cut rates by 25 basis points to kick off the 2024 rate cut cycle with a late start. According to CME's FedWatch tool, the betting markets are pricing in more than 80% probability of a quarter-point cut by the Fed next week, with a small 20% still leaning toward hopes of an initial double 50 basis point cut. Rate traders also overwhelmingly expect the Fed to implement a total of four rate cuts, with the December call for a rate cut expected to be between 425 and 450 basis points.

Trading Recommendation: Watch the level of 1.1090, if consolidated above take Buy positions, if rebounded take Sell positions.

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