US dollar strengthens as PPI spike reduces Fed rate cut bets

The US dollar index rose 0.3% as markets digested higher-than-expected Producer Price Index data from July, significantly reducing expectations for aggressive Federal Reserve rate cuts. The PPI showed a 0.9% monthly increase, well above consensus estimates, signaling persistent inflationary pressures in the US economy. Treasury yields jumped in response, with the 2-year yield climbing 8 basis points to 4.15%. Market pricing for a 50 basis point cut at the September FOMC meeting dropped from 35% to just 20% following the data release. Major dollar pairs reacted strongly, with EUR/USD falling to 1.0920 and GBP/USD declining to 1.2780. Gold prices also retreated $15 to $2,485 per ounce as real yields moved higher. The data suggests the Fed may maintain a more gradual approach to policy easing, supporting dollar strength in the near term.