The dollar was trading close to 1.2720 ahead of the US data on Tuesday, but weakened sharply to just beyond 1.28 in New York… … before stabilising close to 1.2785 and the dollar was little changed in early Europe on Wednesday.

The US producer price data was
weaker than expected with a 0.1% headline increase while there was a 0.3% drop
in underlying prices compared with expectations of a 0.2% monthly increase. This
was the first drop in core prices since last October and the annual increase
slowed to 1.3%. The data will ease concerns that rising crude prices are being
passed on to finished goods and this will reduce pressure for higher interest
rates. The Wednesday consumer inflation data will, however, be more important
for markets and there will be a substantial reaction in interest rate futures
and the dollar if the consumer inflation data does not support the case for
moderating inflationary pressure. Bond yields would rise again and the dollar
would be likely to strengthen, at least temporarily.

www.investica.co.uk