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Stocks, gold fall on high inflation as traders flock to dollar

Unpack how surging PPI inflation caused stocks and gold to dip, while boosting the US dollar. Delve into what these shifts mean for 2024's interest rate cuts and forex markets.
Source: Bloomberg
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

Data current as of 3/14/2024

Key points

  • S&P 500 fell $50 from highs: (0:36)
  • Gold price now nears $2,150: (3:19)
  • PPI inflation rate 0.5% higher than expected: (4:52)
  • US dollar rallies on high PPI inflation: (6:42)
  • What does this mean for interest rates?: (8:31)

S&P 500 fell $50 from highs

The S&P 500 experienced a notable decline, dropping $50 from its recent highs amid concerns that inflation might delay interest rate cuts expected in 2024. The stock market had previously rallied on the back of an expansionary Federal Reserve policy. This recent downturn reflects the market's sensitivity to inflationary pressures and the anticipated monetary policy response, underscoring the intricate relationship between Federal Reserve actions and equity market performances.

Gold price now nears $2,150

Gold, traditionally seen as a safe haven during times of economic uncertainty, fell nearly $20 from its highs, now edging close to $2,150. This decline coincides with rising inflation expectations, which suggest interest rates may remain higher for an extended period. Such a scenario is typically seen as negative for gold since the opportunity cost of holding a non-yielding asset becomes greater in a high-interest-rate environment, highlighting the inverse correlation between interest rates and gold prices.

PPI inflation rate 0.5% higher than expected

Data revealing that the Producer Price Index (PPI) inflation rate was 0.5% above forecasts—marking the highest level since September 2023—has injected a fresh dose of concern into the markets. The PPI measures the average changes in selling prices received by domestic producers for their output, a precursor to consumer inflation. This higher-than-expected rise signals potential ongoing inflationary pressures, prompting investors to recalibrate their expectations for future economic conditions and Federal Reserve actions.

US dollar rallies on high PPI inflation

Following the elevated PPI inflation readings, the US dollar saw a commendable rally against every major currency pair. This appreciation reflects the market's anticipation of a possible hawkish tilt in the Federal Reserve's approach to managing inflation, as higher producer prices may translate into sustained consumer price inflation, influencing the Fed's interest rate decisions. The dollar's strength in such contexts underscores its role as a haven amid inflationary uncertainties and monetary policy adjustments.

What does this mean for interest rates?

The probability of an interest rate cut derived from futures markets has been adjusted downward to 4% in May and 63% in June (CME FedWatch tool), reflecting a decrease in expectations compared to the previous week. These evolving probabilities are a direct consequence of the latest economic data, including inflation figures, which suggest the Federal Reserve might adopt a more cautious stance on reducing interest rates. For traders and investors, these shifts underscore the importance of closely monitoring economic indicators and central bank communications for clues on future monetary policy directions.

How to trade US dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

Reviewed by:
Glen Frybarger
Senior Content Strategist, Chicago

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