The US dollar experienced a notable decline during trading on Tuesday, alongside the release of weak economic data from the US, primarily the Producer Price Index (PPI) data, which came in below market expectations and raised concerns about slowing inflation in the United States.
Here are the key factors impacting the dollar's movement: Negative Producer Price Data Affects the Dollar The US dollar was clearly harmed following the release of the US Producer Price Index data, which came in lower than expected. The US Producer Price Index recorded a growth rate of 3.3% in December compared to the same month last year, which is below the expectations of a 3.4% growth.
Additionally, the core Producer Price Index, which excludes food and energy, increased by 3.5% year-on-year, also below expectations of 3.8%. This data raised fears of a slowdown in inflation, reinforcing expectations that the Federal Reserve will continue its policy of rate cuts.
Weak US Bond Yields Increase Pressure on the Dollar Weak US bond yields also contributed to the pressure on the dollar, with the yield on the 10-year US treasury note falling by 0.27% to reach 4.792%. This drop in yields prompted many investors to reassess their expectations, raising concerns about continued declines in yields in the near term, which had an additional negative impact on dollar performance.
Dollar Benefits from Stability in US Interest Rate Expectations Conversely, the dollar received some support from the stability in US interest rate expectations, despite the negative data. The FedWatch tool showed a significant increase in expectations that the Federal Reserve will keep interest rates unchanged at 4.50% during its upcoming meeting, with expectations reaching 97.3%. Meanwhile, expectations for a 25 basis point rate cut fell to 2.7%, supporting the strength of the dollar.
Dollar Awaits Upcoming US Inflation Data The dollar is also awaiting the release of US inflation data later this week, which is expected to have a strong impact on the dollar's movement. This data is deemed critical in shaping the monetary policy decisions of the Federal Reserve.
Impact of These Factors on the Dollar Index During trading, the US Dollar Index fell by 0.26% to reach 109.24 points. However, investors remain in a state of anticipation regarding the results of the upcoming US inflation data, which is expected to have a significant impact on the dollar's movement in the near future.
