Related Insights
Overnight, the sharp jump in US PPI has reversed the USD’s post-CPI decline, with the DXY rising back above 98. Headline PPI surged by 0.9% m/m in July (exp: 0.2%; Jun: 0%), while the core PPI (ex-food, energy, trade services) also rose 0.6% m/m, signifying broad-based price pressures. Given risks that the high pace of producer price inflation will pass through to CPI inflation, it could quell speculation of a large 50bps Fed rate cut in September, though the USD may slip back if activity indicators slow. Meanwhile, US stock markets are unfazed over the rise in short-term rates post-PPI, with the S&P500 inching up to another record high.
JPY may strengthen after US Treasury Secretary Bessent said that the BOJ could be “behind the curve” on inflation and will likely raise interest rates. While Bessent’s comments were related to spillovers to US Treasury yields from rising Japanese bond yields, his JPY views do have credence given his experience as a hedge fund manager in JPY markets. Meanwhile, Japan’s Q2 GDP growth beat expectations coming in at 1.0% q/q sa (Q1: 0.6%) today, with business investment growing particularly strongly at 1.3% q/q. Expectations for another BOJ rate hike are thus likely to solidify, and USD/JPY could ease again despite having rebounded to 148 post US-PPI.
USD/CNY daily fixings have been stable at around 7.13-7.15 this month, indicating official preference to steer the RMB towards the stronger side, with USD/CNH still hovering above 7.18. This could be to facilitate ongoing trade negotiations with the US, with Trump having extended the trade truce by another 90 days this week. Another consideration is the fact that the RMB has become quite undervalued, with former Treasury official Sobel calling for the RMB to appreciate, which he believes will remove distortions in China’s growth model and ease global trade tensions. 
Quote of the Day
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”
Alan Greenspan
August 15 in history
IN 1971, US President Richard Nixon ended the Bretton Woods system and announced a 90-day freeze on wages, prices, and rents.
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