Key facts
- U.S. producer prices were unchanged in July, below economists' forecasts.
- Consumer prices in the U.S. showed minimal increase last month.
- Expectations for a September Federal Reserve rate hike decreased significantly.
- The dollar index declined, while the euro, yen, and pound saw modest gains.
- The Norwegian crown weakened after the Norges Bank held interest rates steady.
The dollar experienced a slight decline as recent U.S. inflation data suggested a pause in Federal Reserve rate hikes. The Producer Price Index for final demand remained unchanged in July, a softer reading than the 0.2% rebound economists had predicted. This followed a report showing minimal U.S. consumer price inflation in the previous month.
Consequently, traders have scaled back their expectations for a September Fed rate hike, with futures now indicating a 31% probability, down from 40% on Wednesday and 55% a week prior. Noel Dixon, senior macro strategist at State Street, noted that components of the PPI report feeding into the personal consumption expenditures data suggest a favorable outcome for that report, reinforcing the case for the Fed to hold rates steady in September.
The dollar index, which tracks the greenback against a basket of major currencies, fell 0.07% to 99.88. The euro gained 0.1% to $1.1536, and the Japanese yen strengthened 0.14% to 159.19 per dollar. The pound also saw a modest increase, rising 0.08% to $1.3503, buoyed by unexpected growth in the UK economy in June, partly due to lower energy prices and the men's soccer World Cup.
In contrast, the Norwegian crown weakened against the dollar after the Norges Bank maintained its interest rates at 4.25%, citing recent softening in inflation. The dollar strengthened 0.34% against the krone, reaching 9.515. Traders had been assessing the possibility of further Fed rate hikes amid inflation concerns and rising oil prices, though oil prices themselves declined on Thursday due to prospects of weaker global demand and higher U.S. crude inventories. Initial jobless claims in the U.S. increased moderately last week, indicating a stable labor market.