Dollar edges to 99.97 as July PPI data steadies Fed bets

The dollar edged up to 99.97 and the 10-year Treasury yield rose to 4.675 percent after July producer price data came in close to forecasts, keeping the Fed on track to hold rates in September.

"U.S. consumer prices increased just 0.1 percent month-on-month in July, suggesting that inflationary pressure from the earlier energy-price shock is moderating, while recent weakness in the labour market has further reduced the case for immediate tightening," MUFG said in a note.

The PPI release follows Wednesday's CPI report, which showed consumer prices rose 0.1 percent month-on-month in July, in line with forecasts. Economists had expected producer prices to gain 0.1 percent at the headline level and 0.3 percent at the core level for the month, according to FactSet. Spot gold fell about $7 to $4,383.21 an ounce, while the dollar index climbed to 99.97.

Investors now price a 66 percent chance the Fed holds rates steady at its September meeting, according to CME Group. With inflation still tracking above the central bank's 2 percent target and the AI data center buildout adding to price pressures, the policy path remains data-dependent.

The producer price index measures what companies receive for their goods at several stages in the supply chain, making it a leading indicator for consumer inflation. If producers pay more for inputs, they tend to pass those costs down the line, eventually showing up in the CPI. The fact that both the CPI and PPI are now running close to expectations marks a shift from earlier in the year, when war-driven energy price spikes pushed inflation readings above forecasts.

Oil prices fell Thursday as investors weighed a weaker demand outlook, with Brent crude down 1.5 percent and WTI futures down 1.6 percent. The International Energy Agency estimates a deficit of 1.8 million barrels a day in the third quarter as higher fuel prices weigh on consumption, while OPEC also cut its demand-growth forecast. The Middle East conflict continues to hang over the market, with talks to reopen the Strait of Hormuz remaining stalled.

The cooling inflation picture comes as the Fed weighs competing pressures. Fed Governor Lisa Cook has flagged the AI data center buildout as a source of durable price pressure, noting that the capex cycle "has caused significant price increases for chips, other high-tech equipment, software, and utilities." At the same time, Friday's July nonfarm payrolls report showed a loss of 23,000 jobs, well below the 83,000 gain economists had expected, with the unemployment rate ticking down to 4.1 percent partly on a lower participation rate.

Jackson Hole Looms as Next Policy Signal

The market's muted reaction to Thursday's data — with Nasdaq 100 futures holding near flat and the dollar's move contained — suggests investors are increasingly focused on the Jackson Hole symposium on Aug. 27-29 for signals on the policy path. Fed Chair Kevin Warsh has argued that once AI proliferation ramps up, productivity gains will help keep inflation low, a view that diverges from Cook's more cautious assessment.

The divergence within the Fed matters for markets because it means the central bank cannot simply look at oil prices or monthly inflation prints to calibrate policy. If the AI buildout continues to push up costs for chips, utilities, and construction materials, a break in energy prices may not be enough to bring inflation back to target. That dynamic is one reason Treasury yields have remained elevated even as the CPI cools.

The dollar's rise to a two-week high against a basket of currencies reflects this tension, with ING noting that unexciting inflation data left the greenback with little sense of direction ahead of Jackson Hole. Treasury yields had fallen after Wednesday's CPI report, but Thursday's PPI release nudged the 10-year back up to 4.675 percent, showing how sensitive the market remains to any hint of persistent price pressure.

This article is for informational purposes only and does not constitute investment advice.