By Laura Matthews and Samuel Indyk
NEW YORK/LONDON, July 15 (Reuters) – The dollar slipped against major currencies on Wednesday after softer-than-expected U.S. producer prices reinforced signs of easing inflation, bolstering the view that the Federal Reserve can remain patient on interest rates even as investors weighed renewed strikes on Iran.
The Producer Price Index for final demand dropped 0.3% in June after a downwardly revised 0.6% increase in May, the Bureau of Labor Statistics said on Wednesday. Economists polled by Reuters had forecast the PPI unchanged after a previously reported 1.1% advance in May.
The dollar was flat against the yen at 162.19 yen. The euro steadied at $1.1433, while sterling rose 0.44% to $1.3447.
The U.S. dollar index, which tracks the currency against six major peers, softened 0.09% to 100.79. It fell 0.4% in the previous session, its biggest decline in nearly two weeks, after touching its highest level since July 2.
“Today’s PPI numbers further solidify the idea that the Federal Reserve can afford to wait until they increase borrowing costs again,” said Juan Perez, director of trading at Monex USA.
Meanwhile, New York Fed President John Williams said inflation remains “unquestionably too high” but may have peaked and should begin easing, adding that monetary policy is well positioned to guide it back to target.
EYES ON THE MIDDLE EAST
The latest escalation in hostilities between the U.S. and Iran kept oil prices near one-month highs, maintaining pressure on the inflation outlook.
The U.S. military said it had begun a new wave of strikes on Iran at 6 a.m. ET (1000 GMT) on Wednesday, after U.S. President Donald Trump said on Tuesday that Washington had reimposed a naval blockade of all Iranian ports.
The dollar has tended to benefit during flare-ups in the conflict because of its safe-haven status and the relatively limited impact of higher energy prices on the U.S. economy compared with some peers.
Cooler U.S. inflation had earlier weighed on the dollar. U.S. consumer inflation slowed more than expected to 3.5% on a year-on-year basis in June, data showed on Tuesday.
The headline consumer price index fell 0.4% month-on-month, its first decline since April 2020, as energy prices retreated.
“The recent declines in CPI and PPI have largely been attributed to energy price volatility following the pullback after the Iran ceasefire,” said Steve Kolano, chief investment officer at Integrated Partners. “However, given recent events, that trend is expected to reverse.”
New Fed Chair Kevin Warsh told the House Financial Services Committee on Tuesday that the central bank has “no tolerance” for persistently elevated inflation, and pledged to “do my job” if challenged by Trump.
Traders are now pricing in about a 74% chance of a December rate hike, down from around 80% yesterday, while a move later this month is seen as highly unlikely, according to LSEG data.
Elsewhere, China’s economic growth slowed sharply to 4.3% in the second quarter, its weakest pace in more than three years. The yuan briefly firmed to a one-month high as the data reinforced expectations of further policy support.
“I see limited follow-through to the dollar’s post-CPI decline,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman in London, adding that U.S. economic outperformance, the Fed’s commitment to fight inflation and strong foreign demand for U.S. assets should keep the greenback supported.
(Reporting by Laura Matthews in New York and Samuel Indyk in London; additional reporting by Jiaxing Li. Editing by and Kate Mayberry, Mark Potter, Colin Barr, Alexandra Hudson)