The dollar index pared gains on Friday after U.S. producer prices unexpectedly fell in December, raising expectations of an early U.S. rate cut, Trend reports.

It was higher on the day, boosted by safety buying after U.S. and British warplanes, ships and submarines launched dozens of air strikes across Yemen overnight.

The producer price index for final demand dipped 0.1% last month, after a decline in the cost of goods, while prices for services were unchanged, increasing the chances of lower inflation in the months ahead.

That led traders to add to bets for a rate cut in the coming months. Fed funds futures now imply a 79% chance of a March rate cut, up from 73% on Thursday, according to the CME Group’s FedWatch Tool.

“Even though you wouldn’t say overall that the macroeconomic picture is screaming at you that they need to cut that fast, the market seems to be excited about the prospect of cuts,” said Steve Englander, head of Global G10 FX Research and North America Macro Strategy at Standard Chartered
Bank NY Branch.

Traders maintained their view that a March rate cut is likely even after consumer price inflation data on Thursday came in above economists’ expectations. Last week’s jobs report for December also showed strong jobs growth, though underlying details of the report were mixed.

The dollar index was last up 0.19% at 102.40.

The New Zealand and Australian currencies were among the best performers after Friday’s data, but pared gains later in the day.

“If this is a trade, it’s going to be the higher beta currencies that respond the most and take comfort that the market’s clearly hot to trot on the Fed cutting. As long as that’s the perception in the market, I think the higher yielders will do very well,” Englander said.

The kiwi was last up 0.22% on the day at $0.62460. The Aussie was little changed at $0.66870.

Source: TREND News Agency