US Dollar Lower Despite Strong PPI

Market Reviews

Global stock markets recovered after Chinese President Xi Jinping said today he would open the country’s economy and lower import tariffs on automobiles. Major European indices are generally higher with DAX up near 1%, the CAC increased by 0.55% and FTSE rose by 0.6%. Japanese Nikkei gained 0.54%.

Xi Jinping also promised to enforce the legal intellectual property of foreign firms, which was a point of contention for US President Donald Trump. The comments helped soothe investor worry over an escalating trade war between the two countries. However none of the comments made by Xi were new, and had been promised in some form or other in the past. Xi also did not give a time frame from when the new measures would take place.

The US dollar is trading lower, despite strong PPI data. The Labor Department said its producer price index increased 0.3% last month. In the 12 months through March, the PPI rose 3.0%. Economists had forecast the PPI rising 0.1% last month and increasing 2.9% from a year ago. The so-called core PPI increased by 0.3% from a month earlier and rose 2.7% in the 12 months through March. This also raised speculation that March CPI’s due on Wednesday may rise as well. Forecasts are for the headline CPI to have risen to 2.4% y/y versus 2.2% the preceding month.

British pound advanced to a two-week high of 1.4178 after the BoE and MPC member Ian McCafferty told today that monetary tightening should not be delayed as wage growth might pick up faster than expected, pushing inflation above the BoE target.

Euro stretched upwards, reaching a 2-week high after Ewald Nowotny (ECB Governing Council) reiterated that the ECB must reduce stimulus not too soon but neither too late. Nowotny also noted that it is still too early to talk about when the rate will hike, adding that, for starters, the ECB can raise the deposit rate from -0.4% to -0.2%, and then it will be possible to move to the key rate refinancing.