Why it's important?

The ranges of estimates are important in terms of market reaction because when the actual data deviates from the expectations, it creates a surprise effect. Another important input in market's reaction is the distribution of forecasts.

In fact, although we can have a range of estimates, most forecasts might be clustered on the upper bound of the range, so even if the data comes out inside the range of estimates but on the lower bound of the range, it can still create a surprise effect.

PPI Y/Y

  • 2.7% (5%)
  • 2.6% (18%)
  • 2.5% (64%) - consensus
  • 2.4% (13%)

PPI M/M

  • 0.4% (2%)
  • 0.3% (42%)
  • 0.2% (46%) - consensus
  • 0.1% (10%)

Core PPI Y/Y

  • 2.9% (5%)
  • 2.8% (25%)
  • 2.7% (65%) - consensus
  • 2.6% (5%)

Core PPI M/M

  • 0.3% (27%)
  • 0.2% (64%) - consensus
  • 0.1% (9%)

We can ignore the headline PPI as the market will focus on the Core figures. The USD got a boost yesterday across the board following the US CPI report. The data was actually in line with expectations and arguably on the softer side than feared. In fact, the market didn’t really move much following the release but roughly an hour later we started to see strong bids in the greenback.

This might have to do with positioning since the “short US dollar” trade has been the most crowded one and in such instances, it doesn’t take much to see strong unwinding. The market did pare back further the rate cut bets with the pricing now showing 44 bps of easing by year end compared to 47 bps before the CPI release. That could still change today after the US PPI report.

A soft report might get us back to roughly 50 bps of easing by year-end and help to erase yesterday's dollar gains. Conversely, hot data could strengthen market's worries that we might see even higher data in the next months.

Source: Forex Live