By Chuck Mikolajczak
NEW YORK, May 13 (Reuters) – The dollar gained on Wednesday after hitting a two-week high following the latest stronger-than-expected U.S. inflation reading, with talks set to begin in Beijing between President Donald Trump and China’s President Xi Jinping in the spotlight.
The U.S. Labor Department said the Producer Price Index for final demand surged 1.4% last month, the largest since March 2022 and well above the 0.5% estimate of economists polled by Reuters, after an upwardly revised 0.7% advance in March.
In the 12 months through April, the PPI jumped 6.0%, the largest increase since December 2022 and above the 4.9% forecast, after a revised 4.3% increase in March.
“That escalated quickly,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin. “With a 15.6% increase in the index for gasoline, it’s not too surprising that transportation and distribution costs have shot higher. For now, the energy shock is more a threat to corporate margins than to consumer prices, but the longer prices stay elevated, the more it will bleed through to the consumer.”
The dollar index, which measures the greenback against a basket of currencies, rose 0.21% to 98.53 after hitting 98.601, its highest level since April 30, with the euro down 0.26% at $1.1706.
The strong producer prices reading came a day after an annual reading of consumer prices posted its largest gain in three years.
In its mid-year outlook, Morgan Stanley said that it sees modest dollar weakness continuing through the second half of the year as “easing core inflation, lower rates and strong global risk appetite,” but also sees a recovery into 2027 as U.S. growth leadership and European political risks provide support.
Markets have largely priced out any chance of a rate cut this year from the Federal Reserve, while expectations for a hike of at least 25 basis points at the central bank’s December meeting have climbed to 35%, according to CME FedWatch, up from 16.3% a week ago.
The U.S. Senate confirmed Trump’s nominee Kevin Warsh as chair of the Federal Reserve, putting the 56-year-old lawyer and financier at the helm as the U.S. central bank grapples with intensifying inflation that may make it hard to push through the interest-rate cuts that the Republican president has demanded.
Boston Federal Reserve President Susan Collins said the central bank may need to raise interest rates if inflation pressures do not abate. Minneapolis Federal Reserve President Neel Kashkari said the labor market has improved from earlier this year while the Iran war has worsened inflation, supporting his view that rate hikes could be possible.
