Today, in the U.S., the Producer Price Index (PPI) was released and showed an increase of only 0.1% in July, falling short of the expected 0.2%.

Excluding food and energy, the core PPI remained flat. The year-over-year headline PPI showed a sharp drop from 2.7% in June to 2.2% in July.

In response, market expectations shifted towards a faster pace of interest rate cuts by the Federal Reserve. As a result, the U.S. dollar took a big fat dump. 💩

The Producer Price Index (PPI) tracks the prices of a wide range of goods and services in the U.S., from raw materials to finished products, at the wholesale level.

Market participants closely monitor the PPI since it reflects the prices producers pay for inputs, and often serves as an early indicator of inflation that could later be passed on to consumers.

If producers face higher input costs, they might pass those costs onto consumers by raising prices, which could eventually show up in consumer inflation measures like the Consumer Price Index (CPI) and the Fed’s preferred measure of inflation, Core PCE.

When the Fed cuts interest rates faster than expected, it reduces the difference between U.S. interest rates and those of other countries. This makes U.S. dollar-denominated assets less attractive to foreigner seeking higher returns. As a result, demand for the U.S. dollar decreases, causing its value to fall. To learn more, check out our lessonn, Why Interest Rates Matter to Forex Traders.

With the Bureau of Labor Statistics (BLS) set to release the July CPI report tomorrow, it now becomes the primary focus for a clearer inflation outlook. 

Last month, we saw a notable decline in the month-over-month change, with a negative print of -0.06% – the first in almost two years and the lowest since May 2020.

For tomorrow’s release, expectations are for a rebound to a positive 0.2% month-over-month change.

Wednesday’s CPI report will determine whether the U.S. dollar’s current decline continues or reverses.

For more details on what to watch out for, read our Event Guide: U.S. CPI Report (July 2024) which is available for Premium members. 

Currency Market Movers

Let’s review the price action in forex today.

Which currency pairs gained the most today?

NZD/USD was the leader of the pack, gaining 1.01% or 60 pips.

As shown by our FX Market Movers page, NZD/CHF and GBP/USD won the silver and bronze medals today.

Looking at the NZD/USD Trend Following Rating, it’s showing a Bullish rating.

The currency pair has managed to climb back above most of its major moving averages, with the 200 SMA being the lone dynamic resistance area.

But the NZD/USD Overbought/Oversold Rating is showing “Neutral“.

⚠️ Be careful though! The New Zealand dollar could make some huge moves soon.

Tomorrow, the Reserve Bank of New Zealand (RBNZ) will announce its decision on the official cash rate.

It’s expected that the RBNZ will start to reverse its current monetary policy stance by lowering the key interest rate by 0.25% to 5.25%.

If you’re a Premium member, to prepare yourself, make sure to read our Event Guide: RBNZ Monetary Policy Statement (August 2024). 👍

Which currency pairs lost the most today?

EUR/NZD was the biggest loser, falling 0.34% or 62 pips.

Looking at the EUR/NZD Pivot Points, the price looks to be trading near support pivot levels.

Currency Strength

What was the overall strength or weakness of individual major currencies today?

Based on the Currency Strength Meter on MarketMilk™, NZD was, by far, the strongest currency, while USD was the weakest currency.

 

If we dive a little deeper and look at just how major currency pairs moved over the past 24 hours, we can see just how NZD/USD surged after the PPI release.

Currency Short-Term Trends

When it comes to short-term trend strength, JPY shows the most bullish strength.

The New Zealand dollar (NZD) shows the most bullish strength.

Currency Heat Map

If we take a look a look at our Currency Heat Map, we can see a strengthening of EUR across timeframes.

Currency Volatility

Which currency was the most volatile today?

Based on our Currency Volatility Meter, it’s the JPY.

Check out the increase in volatility today for major currencies once PPI was released:

Which currency PAIR was the most volatile today?

Given that JPY was the most volatile currency, which pair?

None of the JPY pairs! It was NZD/USD, moving 1.08% or 65 pips.