US stocks closed higher on Tuesday, reaching their highest level in nearly two weeks, after weak producer price data raised investor expectations of a Federal Reserve interest rate cut in September.
The US producer price index for July increased less than anticipated, as falling service prices balanced out rising goods prices, indicating a continued slowdown in inflation.
Investors are now focused on the July consumer price data due today and retail sales data due Thursday, which may strengthen the case for a significant rate cut by the Federal Reserve.
Preliminary data showed that the S&P 500 index closed up by 90.16 points, or 1.69%, at 5,434.55. The Nasdaq Composite rose by 405.84 points, or 2.42%, to 17,186.44, and the Dow Jones Industrial Average increased by 405.42 points, or 1.03%, to 39,762.43.
In the currency markets, the dollar fell against the yen and a basket of currencies as markets awaited US inflation data, which could influence expectations for a Federal Reserve rate cut.
The dollar’s decline against the yen followed the release of data showing that the US producer price index rose less than expected in July, with a drop in service prices offsetting higher goods prices. This suggests that inflation is continuing to slow.
US Treasury yields fell as bond prices rose in response to the PPI report.
Investors are closely watching today’s consumer price index (CPI) report for further indications of the Federal Reserve’s direction on interest rates.
Currency markets have experienced volatility due to a sharp rise in the yen since July, disrupting a popular investment strategy known as the carry trade, and contributing to a decline in stocks.
On Tuesday, the dollar fell by 0.35% against the yen to 146.71 yen, with markets appearing to have moved past the worst of recent turbulence.
In July, the yen reached a 38-year low as investors engaged in the carry trade, borrowing yen in Japan at low interest rates and selling it for other currencies to purchase higher-yielding assets. However, factors such as the Bank of Japan’s surprise interest rate hike and expectations of a rate cut in the US due to a slowing labour market have reversed this trend, pushing the yen up 8% since mid-July.
The dollar index fell by 0.5% to 102.56, while the euro rose by 0.61% to $1.0999.
Sterling increased by 0.81% to $1.2869 after data earlier in the session showed that the UK unemployment rate fell to 4.2% in June from 4.4% in May, defying economists’ expectations of a slight rise. Job vacancies fell, and wage growth slowed.