US Dollar: Mixed data and higher yields shape outlook – Danske Bank

Danske Bank’s Danske Research Team notes that US July PPI came in slightly below expectations, with volatile trade and transport services dragging the headline lower while broader services stayed firm. Long-term borrowing costs at a 30-year Treasury auction rose to their highest since 2001, reflecting concerns over federal debt and persistent inflation. Fed’s Hammack reiterated support for higher policy rates to curb inflation.

Softer PPI but hawkish Fed voices

"In the US, July PPI was slightly softer than expected at 4.7% y/y (cons.: 4.9%). Volatile trade and transportation services pulled the reading lower, while broader services price pressures were a little stronger than expected. Core goods were steady and energy was in line with expectations."

"Weekly jobless claims, released at the same time, were also mixed, with continuing claims a touch lower than expected and initial claims higher. Overall, the market reaction was muted."

"The higher borrowing costs add pressure as debt servicing already exceeds defence spending, while the large fiscal deficits and a shift towards more short-term issuance leave public finances more exposed to interest rate moves. On the wires, Fed's Hammack, one of the dissenters who voted for a hike at the last meeting, reiterated that she continues to see the case for higher policy rates and said the Fed needs to act now to bring inflation under control."

"Also in the US, long-term borrowing costs rose to their highest level since 2001 at a USD25bn auction of 30-year Treasury bonds. The auction reflected growing investor concern over the growing federal debt burden and inflation that remains above the Fed's target."

"In the US, US July retail sales data is due for release today. Private consumption was the most important growth driver in Q2, and the release will provide markets with the first hard data evidence of whether the strength also continued into late summer. The August flash consumer sentiment survey from the University of Michigan will provide an even more forward-looking signal. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)