Summary:

• Both headline and core PPI gauges come in below expectations
• US weekly jobless claims rise marginally higher than an estimate
• USDJPY tumbles as higher CPI is in jeopardy

US PPI marked an unexpected decrease in July, the first one in nearly a year, suggesting that CPI is going to be contained. Headline PPI came in at -0.1% mom and 1.9% yoy against the consensuses at 0.1% mom and 2.2% yoy respectively. A surprising decline in terms of a monthly basis was the first one since August last year. Moreover, core PPI missed forecasts as well showing 0% mom and 1.8% yoy, whereas projections suggested a 0.2% rise in case of a monthly basis and a 2.1% increase as for a yearly basis.

US PPI slows down quite unexpectedly in July foretelling not well in terms of the CPI report. Source: Bloomberg, XTB Research

There is no doubt that a lower than expected pace of PPI could cast a shadow on CPI as well which, if so, would be met with yet less conviction of the Federal Reserve as far as another rate hike this year is concerned. What’s more, if CPI turns out to be sub-par, it could cool down expectations as for an announcement of the balance sheet run-off as soon as September. As a result, the US dollar might find itself under pressure once again.

Beside the PPI data, there was a release of a change in weekly jobless claims. The figure came in at 244k slightly missing a forecast at 240k. However, a 4-week moving average ticked down from 242k to 241k suggesting that the US labor market holds its sturdy momentum being still the brightest spot in the whole economy.

The USDJPY is tumbling in the aftermath of the PPI report and nearing a critical technical level. Source: xStation5

The US dollar is tumbling against the Japanese currency following the sub-par PPI report suggesting softer CPI. If buyers are unable to defend themselves at a crucial support, it could give a rise to an extended leg lower towards 108.15.

Bear in mind that the CPI report will be revealed tomorrow at 1:30 pm BST.