USD Takes A Last Dive on Softer Producer Inflation PPI

Yesterday the USD resumed the retreat as we approach the FOMC meeting later today, after the consumer inflation CPI (consumer price index) posted another considerable slowdown to 4.0% in May, from 4.9% in April, beating expectations of 4.1%. Today the producer inflation PPI (producer price index) posted anotheer decline as well, as the report below shows and the USD went through another wave of selling.

EUR/USD continues higher above 1.08, while XAU jumped more than $10, hitting the take profit target of our buy Gold signal which we opened earlier today. We decided to reverse course though, as the climb seems to have stopped at moving averages on the H4 chart, which are acting as resistance, particularly the 100 SMA (green).

US PPI Producer Inflation Report for May

• May PPI final demand 1.1% % versus 1.5% expected
• April PPI was 2.3% year on year and 0.2% month-to-month\
• Final Demand Year over Year (YoY) 1.1% versus 1.5% expected. Lowest level since December 2020.
• Final Demand Month over Month (MoM) -0.3% % versus -0.1% expected
• Core PPI ex. Food and Energy YoY 2.8% versus 2.9% expected
• Ex Food and Energy MoM 0.2% versus 0.2% expected
• Ex Food, Energy, and Trade YoY 2.8% versus 3.3% last month (revised from 3.4%)
• Ex Food, Energy, and Trade MoM 0.0% versus 0.1% last month (revised from 0.2%)

Added details:

• Final demand goods fell -1.6%: The 1.6% decline in May, the largest since July 2022, was primarily driven by a 6.8% drop in the index for final demand energy. Prices for final demand foods decreased by 1.3%, while the index for final demand goods less foods and energy increased by 0.1%.

• Product detail: 60% of the May decline in the final demand goods index can be attributed to a 13.8% drop in gasoline prices. Diesel fuel, chicken eggs, jet fuel, fresh and dry vegetables, and iron and steel scrap indexes also fell. On the other hand, tobacco product prices increased by 1.7%, and electric power and beverage material indexes also saw increases.

• Final demand services rose 0.2%: This index increased by 0.2% in May, following a 0.3% increase in April. Leading this increase were margins for final demand trade services, which rose by 1.0%. Prices for final demand services less trade, transportation, and warehousing edged up 0.1%. However, the index for final demand transportation and warehousing services declined by 1.4%.

• Product detail: Over 40% of the May increase in prices for final demand services was due to a 4.2% rise in margins for automobile and automobile parts retailing. Other indexes that advanced include fuels and lubricants retailing, apparel retailing, securities brokerage, and machinery and vehicle wholesaling. However, truck transportation of freight prices fell 2.1%, and portfolio management and health, beauty, and optical goods retailing indexes also decreased.

Looking at the yield curve, yields are down about 1 1/2 basis points:

• 2-year yield 4.632% -6.3 basis points
• 5-year yield 3.971% -5.1 basis points
• 10-year yield 3.797% -4.1 basis points
• 30-year yield 3.912% -2.8 basis points

The USD is moving to the downside with new lows for the session in all the major currency pairs. The market reacts less to the PPI data versus the CPI. Nevertheless, it does indicate that prices down the pipeline are dissipating and dissipating rapidly.

GOLD