US producer inflation, as measured by the Producer Price Index (PPI), eased to 2.6% year-on-year in August from 3.3% in July, the US Bureau of Labor Statistics (BLS) reported on Wednesday. The reading came below market expectations of 3.3%. On a monthly basis, the PPI fell 0.1% following July’s 0.7% increase, revised down from 0.9%.
Core PPI, which excludes food and energy, also declined 0.1% month-on-month. Annually, core inflation slowed to 2.8% from 3.7% in July, missing the forecast of 3.5% by a wide margin.
Market reaction to PPI data
The US Dollar Index (DXY) came under renewed pressure following the report, erasing intraday gains. At the time of writing, the index was down 0.1% at 97.65, reflecting increased expectations for a potential Federal Reserve (Fed) rate cut.
Preview and expectations before PPI release
Prior to the release, analysts had expected the US PPI to rise 3.3% YoY in August, matching July’s pace. Core PPI was forecast at 3.5% annually, down from 3.7% in July. On a monthly basis, both PPI and core PPI were seen advancing by 0.3%.
The PPI report, which measures inflation at the wholesale level, is typically seen as a leading indicator for the Consumer Price Index (CPI), which tracks consumer-level price changes. The CPI for August is scheduled for Thursday, making the PPI a preliminary gauge of inflationary pressures.
Fed outlook and market pricing
With tepid employment data released last week and the BLS reporting a -911,000 revision to March 2025 Nonfarm payrolls, market participants have fully priced in an interest rate cut at the September Fed meeting. Current odds, according to the CME FedWatch Tool, indicate an 88.2% chance of a 25 bps cut and 11.8% for a 50 bps cut.
Fed Chair Jerome Powell has signaled at the Jackson Hole Symposium that the Fed may adjust its policy stance due to risks from tariffs and labor market pressures, reinforcing expectations for potential easing.
Impact on EUR/USD
Soft PPI data tends to weigh on the US Dollar, as investors price in a higher likelihood of Fed easing. Headline and core figures are closely watched, with stronger-than-expected numbers reducing odds for rate cuts and boosting the Greenback.
Valeria Bednarik, Chief Analyst at FXStreet, notes that EUR/USD trades above 1.1700 heading into the PPI release. “Immediate support lies around 1.1700, with a corrective decline possible toward 1.1650 and 1.1600-1.1610 if breached. Resistance comes at 1.1780, with the yearly top near 1.1830. Significant advances are more likely after Thursday’s CPI release, potentially targeting 1.1900,” she adds.
