On May 14th, data released by the U.S. Bureau of Labor Statistics showed that the Producer Price Index (PPI) for April surged by 1.4% month-on-month, marking the largest monthly increase since March 2022 and significantly surpassing the market expectation of 0.5%. The March figure was also revised upward to 0.7%. Year-on-year, the PPI soared to 6.0%, the highest level since December 2022, far exceeding the market forecast of 4.8%. The core PPI, which excludes food and energy, rose 5.2% year-on-year and 1.0% month-on-month, approximately 1.2 times and 3.3 times their respective expectations. The strong PPI data further reinforced the market's reassessment of Federal Reserve policy, which had begun to shift dramatically following Tuesday's CPI report. According to pricing from the CME FedWatch Tool, the market has largely priced out any possibility of interest rate cuts from now through the end of 2027. Conversely, the probability of a 25-basis-point rate hike by the end of this year has risen to around 50% (approximately 37% on Tuesday), with money market pricing suggesting the Fed could cumulatively raise rates by about 24 basis points by its June 2027 policy meeting.
Separately, data from France's National Institute of Statistics showed the unemployment rate rose to 8.1% in the first quarter of this year, exceeding 8% for the first time since 2021, as unemployment increased across all age groups. Economists had expected a slight decrease to 7.8% from 7.9% at the end of last year. French Central Bank Governor François Villeroy de Galhau stated on Wednesday, "There has been a slight increase in unemployment figures, reflecting an economic slowdown." However, he emphasized the importance of remembering "the long-term progress of the French economy," noting, "During the last economic slowdown after 2012, the French unemployment rate was above 10%; it is now around 8%. This is clearly not satisfactory news. But since 2010, the French economy has created over 4 million net new jobs." French Budget Minister David Amiel also commented in an interview that the data "reminds us that we must continue to advance this top priority work."
Key data to watch today includes the UK's March monthly GDP, industrial production monthly rate, goods trade balance, preliminary Q1 annual GDP (production approach), the U.S. April import price index monthly rate, initial jobless claims for the week ending May 9th, and the U.S. April retail sales monthly rate.
**Dollar Index** The dollar index rose in volatile trading yesterday, reaching a fresh 9-day high, with the spot rate currently hovering around 98.50. Support continued from the previously released strong U.S. inflation data, while lingering geopolitical tensions in the Middle East also fueled safe-haven demand for the dollar. Furthermore, the robust U.S. PPI data released during the session, which heightened expectations for Federal Reserve rate hikes, was a significant factor driving the index higher. Today, focus is on resistance near 99.00, with support around 98.00.
**EUR/USD** The euro declined in choppy trading yesterday, narrowly holding above the 1.1700 level and hitting a fresh 5-day low. The spot rate is currently trading around 1.1710. The primary pressure came from the sustained climb of the dollar index, driven by safe-haven demand and strong economic data that revived Fed rate hike expectations. However, economic data from the Eurozone that met market expectations and expectations for a European Central Bank rate hike in June limited the pair's downside. Today, watch resistance near 1.1800 and support around 1.1600.
**GBP/USD** The British pound edged lower in volatile trading yesterday, closing slightly down for the day. The spot rate is currently trading around 1.3530. The main downward pressure stemmed from the dollar index hitting a 9-day high, supported by strong U.S. data boosting Fed hike expectations and safe-haven flows. Additionally, concerns over political uncertainty in the UK also weighed on the currency. Today, focus is on resistance near 1.3600, with support around 1.3450.
Comments