Market Data 
- Weak labor data led to a decline in the US Dollar during Thursday session.
- Initial Jobless Claims remained at 230K, indicating a persistent labor market.
- PPI fell short of expectations, signaling a potential easing of inflation, which also added to the USD’s downside.
The US Dollar Index, which measures the value of the USD against a basket of six currencies, is posting daily losses after soft labor and inflation data.
Despite positive economic indicators, current market valuations may be overly optimistic. Recent data reveals that the US economy remains robust, expanding at a rate exceeding expectations.
Daily digest market movers: DXY down after inflation and labor data
- The US Dollar declined against its major rivals amid dovish signals from the latest US labor market and inflation reports.
- Initial Jobless Claims, a proxy for layoffs in the US, increased to 230K in the week ended September 7, matching estimates and slightly above the prior week’s upwardly revised 228K.
- The advance seasonally-adjusted insured unemployment rate remained unchanged at 1.2%, and the 4-week moving average rose to 230.75K.
- The Producer Price Index (PPI) for final demand in the US rose 2.2% YoY in July, below the 2.3% market forecast and the previous 2.7% increase.
- The annual core PPI rose 2.4%, missing the 2.7% consensus estimate. On a monthly basis, the PPI increased 0.1%, while the core PPI remained flat.
- The CME FedWatch tool indicates a 13% probability of the Fed cutting interest rates by 50 basis points in September, unchanged from before the PPI release.
- These reports suggest that the US labor market remains resilient despite economic headwinds, while inflation pressures may be moderating, supporting the Fed’s dovish stance.
DXY technical outlook: DXY resumes downside, breakout improves outlook
Technical analysis indicators for the DXY index have resumed their downward trend in negative territory. However, on Tuesday, the index regained the 20-day Simple Moving Average (SMA) at approximately 101.60. This breakout has improved the short-term outlook, and the immediate task for buyers is to hold this level.The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators remain in negative territory, suggesting bearish momentum. However, both indicators are showing some signs of upward movement, which could indicate a potential reversal in trend.
Supports are located at 101.60, 101.30 and 101.00. Resistances are found at 101.80, 102.00 and 102.30.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
