US dollar index dips as producer prices cool, boosting hopes of rate hike cycle end

The US dollar fell to a two-month low against a basket of currencies and a one-year low against the euro on Thursday after US producer prices unexpectedly fell in March, boosting expectations that the Federal Reserve is near the end of its rate hiking cycle.

The dollar index fell to 100.84, the lowest since February 2. The euro reached $1.10680, the highest since April 1, 2022.

The dollar fell 0.32 per cent against the yen to 132.77. The Aussie dollar, which is sensitive to risk appetite, reached $0.67965, up around 1.4 per cent on the day and the highest since February 24.

The rupee appreciated 26 paise to close at 81.85 against the US dollar on Thursday, supported by a weak greenback in the overseas markets.

The producer price index (PPI) for final demand dropped 0.5 per cent last month. In the 12 months through March, the PPI increased 2.7 per cent. That was the smallest year-on-year rise since January 2021 and followed a 4.9 per cent advance in February.

It comes after consumer price index (CPI) inflation data on Wednesday came in at 5 per cent year-on-year in March, down from 6 per cent in February. Core inflation - which strips out volatile food and energy prices - picked up to 5.6 per cent, from 5.5 per cent the previous month.

The next major US economic release will be retail sales on Friday, which will be analyzed for how inflation is affecting consumer spending.

Other data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased more than expected last week, a further sign that labor market conditions were loosening up as higher borrowing costs dampen demand in the economy.

The US stock market ended sharply higher on Thursday as Dow Jones, S&P 500 and tech-heavy Nasdaq Composite each rise up to 2 per cent at the close amid better economic data, which showed cooling inflation, fueling optimism about rate hike pause by US Fed Reserve.

With Reuters Inputs