(Updated in New York afternoon time)
* Fed funds futures show 35% chance of September hike, down from 40% on Wednesday
* July producer prices are unchanged after revised 0.1% drop in June
* Dollar index edges up 0.02% to 99.96 after briefly falling to 99.80
NEW YORK, Aug 13 (Reuters) – The U.S. dollar was mixed on Thursday after data showed that producer prices were unchanged in July, leading traders to further pare bets on a September Federal Reserve interest rate hike. The flat reading in the Producer Price Index for final demand last month followed a revised 0.1% drop in June. Economists polled by Reuters had forecast the PPI rebounding 0.2%. It comes after Wednesday’s consumer price inflation report showed that U.S. consumer prices barely increased last month.
Noel Dixon, senior macro strategist at State Street, said the components of Thursday’s report that feed into the personal consumption expenditures data due later this month suggest that the report “should be pretty good.”
“My takeaway from that number and yesterday’s number is that it helps to make the case for the Fed staying on hold in September,” Dixon said. Fed funds futures now show a 35% probability of a September hike, down from 40% on Wednesday and 55% a week earlier.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.02% to 99.96, after earlier falling to 99.80 in the aftermath of the PPI report. The euro gained 0.03% to $1.1528.
Traders have been weighing whether the Fed will need to raise rates as inflation remains stubbornly above the central bank’s 2% target and oil prices climb amid Iran-related disruptions in the Strait of Hormuz. Oil prices pared losses to less than 1% after dropping more than 3% earlier on Thursday, as reports that Yemen’s Houthis had targeted a Saudi Aramco refinery with drones renewed concerns over supply disruptions in an already tight global market. Other data on Thursday showed that the number of Americans filing claims for unemployment benefits increased moderately last week, suggesting that the labor market remains stable despite July’s surprise job losses. Retail sales data on Friday will be the next test of U.S. economic strength.
The Japanese yen weakened 0.04% to 159.48 per dollar. The Japanese currency has given back some of the gains from last month’s historic joint intervention by the U.S. and Japan. That intervention has fueled market bets that the Bank of Japan will need to hike rates faster and further, raising the stakes for the currency heading into next month’s policy meeting. “I don’t think it’s scared away investors from continuing to fade the yen unless we get the BOJ to deliver in September, and have an increase in hawkish guidance,” said Dixon. The pound weakened 0.08% to $1.3481. The UK economy unexpectedly grew in June, thanks to a dip in energy prices, along with the start of the men’s soccer World Cup and hot weather. The Norwegian crown weakened after Norges Bank left interest rates unchanged, as expected, while flagging that inflation had softened recently. At 4.25%, Norway holds one of the highest interest rates among the 10 most developed economies, and its status as an oil and gas exporter has given the crown a boost this year.
Against the Norwegian crown, the dollar strengthened 0.24% to 9.51.
(Reporting by Karen Brettell; Additional reporting by Amanda Cooper, Kevin Buckland and Ankur Banerjee; Editing by Jamie Freed, Jacqueline Wong, Susan Fenton and Sanjeev Miglani)
