Dollar Rises as PPI Report Sparks Rate Hike Expectations
The US dollar rose on Thursday after the release of the August producer price index (PPI) report, which showed an acceleration in annual headline U.S. producer inflation.
According to the Bureau of Labor Statistics, headline PPI ticked up 0.4% M/M and 5.4% Y/Y in August, versus consensus estimates of 0.4% and 5.3%, respectively.
This led to a firming of Federal Reserve rate hike expectations, with the probability of a quarter-point rate hike by Federal Open Market Committee (FOMC) on September 16 now standing at 74%, up from about 64% before the PPI data.
The bond market added to its slump after the data, with yields surging and further driving up borrowing costs. The benchmark 10-year Treasury yield was last up 11.8 basis points to 4.955%, while the shorter-end, more rate-sensitive 2-year Treasury note added 12.9 basis points to 4.556%.
The euro slipped after the European Central Bank (ECB) delivered a rate hike as widely expected, with the ECB citing ongoing pressure from a jump in energy prices linked to the Middle East conflict.