US Dollar Struggles to Hold One-Week High on PPI, Falling Business Optimism

The US dollar is struggling to hold onto its best level in one week as higher producer prices and falling business optimism affected the greenback. After a near 7% slide in three months, the greenback has been holding steady so far this month amid uncertainty in the post-coronavirus global economy. But is the dollar oversold, or could inflation threaten its strength in international forex markets?

In July, the producer price index (PPI) rose 0.6%, up from the 0.2% dip in June. The reading comes in higher than the 0.3% market forecast, and it is the largest increase since October 2018. On an annualized basis, the PPI has slumped 0.4%.
The core PPI, which strips out the volatile food and energy, picked up 0.5% last month, which is higher than the 0.3% slide in June. The core PPI has jumped 0.3% on a yearly basis.
According to the National Federation of Independent Business (NFIB), the business optimism index fell from 100.6 in June to 98.8 in July as COVID-19 continues to impact the private sector. The outlook for general business conditions over the next six months decreased 14 points to 25, and the percentage of business owners who think it is a good time to invest in their companies fell eight points to 5%.
Geopolitical tensions may have stopped the dollar’s slide as the US and China engage in tit-for-tat retaliation. Beijing recently slapped sanctions on 11 US citizens, including Senator Ted Cruz (R-TX) and Senator Marco Rubio (R-FL). Treasury Secretary Steven Mnuchin confirmed that Chinese companies that refuse to comply with accounting standards would be delisted from US stock exchanges by the end of next year.
The bond market advanced on Tuesday, with the benchmark 10-year Treasury climbing 0.071% to 0.645%. The two-year note rose 0.016% to 0.147%, while the 30-year bond tacked on 0.081% to 1.328%.
The US Dollar Index, which gauges the greenback against a basket of currencies, dropped 0.17% to 93.42, from an opening of 93.60.
The USD/CAD currency pair tumbled 0.37% to 1.3302, from an opening of 1.3351, at 14:57 GMT on Tuesday. The EUR/USD surged 0.36% to 1.1768, from an opening of 1.1737.
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