Dollar Slips as US Producer Inflation Comes In Softer Than Expected

what happened

According to Market Talk, the US Producer Price Index for October rose 0.3% on the month, below the 0.4% expected by analysts in The Wall Street Journal's poll. The annual rate came in at 6.5% against a forecast of 6.6%. September's reading, which was revised up, stood at 1.4%.

The softer figure eased fears that inflation would push the Federal Reserve into faster rate increases, which had recently lifted the dollar to its highs. The DXY dollar index fell to 103.14 from 103.19 before the release. The dollar was little changed against the euro and the yen.

The 10-year Treasury yield slipped to 5.127% from 5.145%, and the two-year fell to 4.836% from 4.876%. According to LSEG data, the probability of a 25 basis point Fed hike in December rose to 91% from 86%, while the chance of a 50 basis point move dropped to 9% from 14%.

why it matters

Producer price data is often watched as an early signal of inflation pressure before consumer prices are published. A softer reading weakens the case for tighter Fed policy, which is why the dollar and government bond yields react to it first. Further moves will depend on upcoming inflation releases and comments from Fed officials.

market impact

Dollar and US Treasuries: softer inflation reduces expectations of fast rate hikes, pressuring the dollar and yields

• ▼DXY pressure down — softer producer prices reduce expectations of aggressive Fed tightening
• ▲US Treasuries pressure up — lower inflation expectations support bond prices and pull yields down

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