Producer Price Index (Inflation) Analysis
- Month-on-month PPI for May prints below consensus estimates
- Lower PPI adds to lower CPI prints earlier this week and increases the possibility of a ‘no hike’ scenario this evening
- EUR/USD and GBP/USD trading higher as both central banks have not signaled a pause in their respective rate hiking cycles
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
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Month on month PPI for May dropped to -0.3% after consensus of a 0.1% drop had initially been forecasted. Year-on-year PPI dropped significantly, from 2.3% to 1.1% while the core measure fell from 3.2% to 2.8%, also beating estimates of 2.9%.
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Lower inflation, it would seem, has arrived just in time for the Fed, which appears to favour a no hike scenario ahead of the FOMC statement to be released at 19:00 today. The committee has previously noted that they will take into consideration the prior rate hikes, lag effects and other developments in determining whether further tightening will be appropriate. Additionally, Fed Chairman Jerome Powell has indicated last month that the current level of rates is within ‘restrictive’ territory – a further indication that the Fed believes it has earned the right to slow down on the rate hiking cycle.
Markets continued to move in the direction of recent momentum, with EUR/USD and GBP/USD heading higher as both the ECB and BoE are set to continue hiking interest rates at a time when the Fed could effectively be on pause.
EUR/USD 5- Min Chart
Source: TradingView, prepared by Richard Snow
GBP/USD 5-Min Chart
Source: TradingView, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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