Dollar Holds Steady as Ceasefire Hopes and PPI Cool Fed Inflation Fears
By Gregor Stuart Hunter
Market Reactions to Geopolitical Developments and Inflation Data
Dollar and Major Currency Movements
HONG KONG, June 12 (Reuters) - The dollar found its footing in early trading on Friday, after sliding to its weakest in a week as traders parsed reports that a ceasefire deal in the Middle East could be imminent.
Against the yen, the U.S. currency was up 0.1% at 160.07 yen. The Australian dollar was down 0.1% at $0.7045, while its kiwi counterpart was down 0.1% at $0.5830.
The euro last bought $1.1576, holding near its strongest in a week after the European Central Bank's first interest rate hike in three years on Thursday. The British pound was flat at $1.3414.
Impact of Middle East Ceasefire Prospects
"Markets reversed late in the U.S. session after President Trump cancelled planned attacks on Iran, suggesting a deal could be signed as soon as this weekend," analysts from Westpac wrote in a note to clients.
"The USD weakened on the latest developments, with the DXY lower and the AUD rising against the USD and other major currencies."
Oil Prices and Energy Market Response
Brent crude tumbled 1.6% to $88.94 a barrel as trading resumed in Asia, after President Donald Trump said on Thursday the United States and Iran could sign a peace deal as soon as this weekend that would reopen the Strait of Hormuz to shipping. Iran countered that it had not reached a final decision on an agreement.
Inflation Data and Central Bank Policy
U.S. Producer Price Index and Inflation Outlook
Data on Thursday showed U.S. producer prices increased more than expected in May, leading to the largest annual gain in 3-1/2 years as the Middle East conflict drove up the cost of energy products.
But traders found encouragement in the details of the report.
Core PPI and Market Sentiment
"The more important core PPI reading, which typically feeds directly into core PCE inflation, came in at 4.9% year-on-year, well below the 5.4% expected," said Tony Sycamore, market analyst at IG in Sydney, referring to the Federal Reserve's preferred gauge of cost-of-living increases. "This, combined with the fall in energy prices, helped calm inflationary concerns."
Federal Reserve and ECB Rate Expectations
Expectations for the timing of the Fed's next rate hike shifted back to December after the report. Fed funds futures now price in an implied 63.3% probability of a 25-basis-point hike at the U.S. central bank's two-day meeting ending October 28, compared with an even chance a day earlier, according to the CME Group's FedWatch tool.
The European Central Bank is now widely expected to lift interest rates again in September, according to LSEG data.
"The ECB delivered its first 25-basis-points hike since September 2023, with inflation and growth revisions hawkish at the margin," analysts from Barclays wrote in a research note. "That said, it offered little guidance on if and when it will follow with more, though risks seemed skewed towards further action, barring a quick improvement in the inflation outlook."
Cryptocurrency Market Update
In cryptocurrencies, bitcoin edged up 0.2% to $63,460.05, while ether eked out a 0.1% increase to $1,672.55.
(Reporting by Gregor Stuart Hunter; Editing by Jacqueline Wong)