US Dollar: Mixed data and higher yields shape outlook – Danske Bank

Danske Bank's research team has analyzed recent US economic data, noting that July PPI fell slightly below expectations at 4.7% year-over-year, compared to the consensus of 4.9%. Volatile trade and transport services contributed to the lower figure, while broader services showed stronger price pressures. Long-term borrowing costs for a 30-year Treasury auction were the highest since 2001, reflecting concerns over federal debt and persistent inflation.

Federal Reserve Chair's Hammack reiterated her support for higher policy rates to control inflation. Mixed jobless claims data also emerged, with a small decrease in continuing claims and an increase in initial claims. The market's reaction to these figures was muted. The rising borrowing costs pose a challenge, as debt servicing has already surpassed defense spending, and fiscal deficits are significant.

With a shift towards short-term issuance, public finances are more exposed to interest rate changes. Fed officials, including dissenters who previously voted for a rate hike, continue to advocate for higher policy rates to tackle inflation. Upcoming US July retail sales data and the University of Michigan's August flash consumer sentiment survey will provide further insight into the strength of private consumption.