Traders head into today’s US producer price release with the Federal Reserve’s next move still in sharp focus. Last month, the FOMC under Chair Jerome Powell held rates at 4.25% to 4.50%, awaiting clearer signals on both inflation and labor market momentum. The PPI report, due later today, will provide key input into the Fed’s preferred inflation gauge, the core PCE index, set for release at month end.
US Treasury Secretary Scott Bessent reignited the dovish debate, saying the Fed’s benchmark rate should be at least 150 basis points lower. He suggested policymakers might have already cut if they had seen the softer labor market revisions that surfaced days after the last meeting. Bessent also signaled that the Fed could strike a more accommodative tone next year particularly if Powell steps down when his chair term ends.
Across the Pacific, attention is turning to the Bank of Japan. Bessent flagged that Tokyo may have to raise rates to get its inflation problem under control. Market surveys show 42% of economists expect a hike in October, with a third forecasting a move in January. For now, the BOJ is seen holding steady at its next meeting on September 19. The prospect of Japanese tightening, coupled with a softer US dollar bias from Washington, is bolstering the yen’s appeal in FX markets.
In Washington, political noise remains in play. President Donald Trump, a vocal critic of the Fed’s cautious stance said he may name Powell’s successor “a little bit early,” with three to four candidates under consideration. On the geopolitical front, Trump warned of “very severe consequences” for Russia if President Vladimir Putin rejects a ceasefire proposal expected to be discussed later this week, following a coordinated call with European leaders.
PPI will set the tone for US yields and the dollar heading into the core PCE release. A softer print would reinforce dovish Fed bets and weigh on the greenback, while an upside surprise risks reviving rate hike speculation and tempering risk appetite. Meanwhile, yen traders are positioning for potential BOJ tightening, making USD/JPY particularly sensitive to incoming rate and inflation headlines.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.