The dollar index (DXY) rose by 0.42% on Thursday, driven by a stronger-than-expected US Producer Price Index (PPI) report, which showed July final-demand PPI increasing by 0.9% month-over-month and 3.3% year-over-year, significantly above market expectations of 0.2% and 2.5%, respectively. This shift prompted a reevaluation of expectations for Federal Reserve rate cuts, with current assessments indicating a 93% chance of a 25 basis point cut at the September 16-17 FOMC meeting.
San Francisco Fed President Mary Daly and St Louis Fed President Alberto Musalem opposed a larger 50 basis point cut at the upcoming meeting, suggesting that the current economic data does not support such a decision. Additionally, US weekly initial unemployment claims dropped by 3,000 to 224,000, further indicating a stronger labor market than anticipated.
In tariff news, President Trump extended the tariff truce with China for 90 days and announced plans for a 100% tariff on semiconductor imports, while also doubling tariffs on US imports from India to 50%. These moves are expected to raise the average US tariff to 15.2%, up from 13.3%. Market reactions include a 0.49% decline in the EUR/USD due to dollar strength and a decrease in precious metals prices, with gold closing down 0.74% and silver 1.38%.
