Forex Today: ECB rate decision, US producer inflation data to lift volatility

On Thursday, September 10, the financial markets remained relatively quiet as investors awaited the European Central Bank's (ECB) monetary policy decision and US producer price data. The US Dollar (USD) showed stability following Wednesday's trading, while the 10-year US Treasury yield reached its highest level since November 2023, supporting the USD. The US Dollar Index hovered around 98.70 in early European trade.

The US producer price index (PPI) for August is projected to increase by 5.3%, up from 4.7% growth in July. Meanwhile, US stock index futures were mixed, with main indices closing in the red on Wednesday. The USD was the weakest against the Japanese Yen (JPY) during the week.

Analysts at DBS noted that the US 30-year yield rose 4.3 basis points (bps) to 5.29% despite the Treasury Secretary's pledge to triple bond buybacks to $6 billion per operation. While buybacks can provide short-term liquidity support, their effectiveness in addressing broader macro concerns remains limited. The ECB is expected to raise rates by 25 bps during its September policy meeting, with the Governing Council targeting a deposit rate of 2.5%.

However, the ECB is expected to maintain a cautious tone, emphasizing that any future policy decisions will be driven by data and assessed on a meeting-by-meeting basis.