The latest Producer Price Index (PPI) data has intensified the debate over the Federal Reserve's potential easing strategy for the coming year. Released on Wednesday, the consumer inflation report is poised to serve as a pivotal indicator in determining whether the Fed will opt for a 25 or 50 basis point easing within the next 12 months. The Core PPI, which excludes the fluctuating costs of food and energy, showed minimal change over the past month, maintaining a year-over-year growth rate of 3.5%.
In December, the PPI rose by 0.2%, a decline from November's 0.4% increase. This slower-than-anticipated rise in producer prices suggests a potential shift in market sentiment towards a more hawkish Federal Reserve stance in 2025. Following the data's release, the Dollar Index experienced a brief dip of 0.2% but quickly rebounded, while the EUR/USD pair extended its gains, approaching the 1.0300 mark during the American trading session.
Market dynamics reflected heightened expectations of a more aggressive Fed policy, with Monday's trading reaching a local high as markets priced in a 32% probability of no change in the Fed Funds rate by year's end. Should Wednesday's consumer inflation figures confirm softer inflation trends, it could lead to profit-taking by dollar bulls, further impacting currency markets.
The early-week downturn resulted in significant market liquidations, with over $734 million liquidated as traders adjusted their positions in response to evolving economic data. Although U.S. producer prices rose at a slower pace than expected in December, the year-over-year growth rate climbed to 3.3%, up from 3.0%. This figure fell short of the average forecast of 3.5%, underscoring market uncertainty regarding future monetary policy.