US producer inflation data shows an extended disinflation trend, leading to a decline in the value of the US dollar against various major currencies.

The turmoil for the US dollar continues. Following the significant weakness in the Non-farm Payroll and US consumer inflation data released in the past week, the greenback today (July 13th) is again hit by US producer inflation data. The US Dollar Index (DXY) immediately plummeted by over 0.5%, testing its lowest range since April 2022 and falling below the crucial threshold of 100.00.

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The US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) for core goods grew by only 0.1% in June 2023. The annual inflation rate stood at only 2.4% for the same period, weaker than the estimated 2.6%.

The data for May was also revised lower than the figures previously reported. In other words, this data once again confirms the ongoing disinflation trend in the United States.

"It is clear that the trend in inflation is down. The question is how far the trend (will go)," said Ugo Lancioni, head of currency management and portfolio manager at Neuberger Berman in Milan. "It reduces the probability that the Fed does more than what the market has priced in. And that has been taken by the market as dollar-negative." 

The market's attention is currently focused on the upcoming Federal Open Market Committee (FOMC) meeting at the end of this month. Market participants still believe that the FOMC will raise interest rates by 25 basis points during this meeting, but there are many speculations regarding the tone and content of the accompanying statement.

"A lot depends on what we hear from the FOMC in a couple of weeks - that will very much decide the fate of the U.S. dollar and set the tone for the rest of the summer," according to City Index markets strategist Fiona Cincotta. "If there is any hint of dovishness in the Fed, then the dollar bears are going to jump on that and it will be an excuse to continue grinding the dollar lower." 

The Greenback is seen struggling as this news is written in the middle of the New York session (July 13th). AUD/USD has surged again by over 1.25% and is testing the 0.6900 level. EUR/USD has soared by around 0.6%, breaking through the 1.1200 level. The rally in GBP/USD has also accelerated, pushing through the 1.3000 and 1.3100 levels in a blink of an eye.