USD hovers near one-month high as PPI shows inflation pressure but retail sales dropped more than expected

US Producer Price Index rose 0.8% in May on a MoM basis, marking a record high. Most of the increase came from rises in goods prices, such as beef, veal, mobile homes, machinery, equipment, and furniture. PPI is different from the more widely followed CPI, which only measures the final prices paid by consumers. PPI, on the other hand, also measures the intermediate prices paid by businesses and governments. Therefore, with CPI rising at the fastest pace in 13 years, economists are looking for inflation drivers from PPI. The inflation pressure has driven USD up, as the market expects that the Fed might tighten its policy sooner than expected.

Retail sales data, however, has pulled back USD a little bit. It dropped more than expected in May, -1.3% from last month compared with the forecast at -0.8%. Vaccination has boosted expenditures in travel and entertainment, and consumers are shifting their spending from goods to services. DXY Index is currently hovering around 90.5, awaiting Fed’s meeting minutes.