US Dollar Index drifts lower to near 98.00 ahead of US PPI data

• US Dollar Index edges lower to around 98.15 in Friday’s Asian session.

• US PPI climbed at a stronger pace than expected in July.

• Traders await the US Retail Sales report for July later on Friday.

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, trades on a softer note near 98.15 during the Asian trading hours on Friday. Expectations that the Federal Reserve (Fed) will cut rates in September weigh on the DXY. The US July Retail Sales data will be the highlight later on Friday, followed by the preliminary reading of the University of Michigan Consumer Sentiment gauge.

Data released by the US Bureau of Labor Statistics on Thursday showed that the US Producer Price Index (PPI) rose 3.3% YoY in July, versus the 2.4% increase prior. This reading came in stronger than the expectations of 2.5% by a wide margin. The annual core PPI climbed 3.7% in July, compared to 2.6% in June and the 2.9% expected. 

Meanwhile, the US Initial Jobless Claims for the week ending August 9 fell to 224K versus 227K prior (revised from 226K). This figure was below the market consensus of 228K. The US Dollar attracts some buyers after the stronger US economic data. 

However, traders remain confident that the US central bank will cut rates in the September meeting. This, in turn, might cap the upside for the DXY. Fed funds futures traders are now pricing in nearly a 92% chance of a 25 basis point (bps) cut next month, up from an 85% possibility last week, according to the CME FedWatch tool.

Traders will take more cues from the US Retail Sales report for July later on Friday. The Retail Sale in the US is expected to show an increase of 0.5% in July. If the data shows a stronger-than-expected outcome, this could help limit the DXY’s losses in the near term.