(Updates at 10:50 a.m. ET (1450 GMT). Adds analyst comment in paragraphs 5-7, Powell comment in paragraphs 10-12)
The dollar edged lower on Tuesday following an unexpected increase in U.S. producer prices in April amid strong gains in the costs of goods and services, indicating inflation remained stubbornly high early in the second quarter.
The report from the
Labor Department
also showed wholesale goods prices rising solidly last month, though the cost of food declined. Traders trimmed their expectations for the Federal Reserve to cut interest rates in September after the report.
The dollar index =USD , a measure of the U.S. currency against six major peers, was down 0.12% at 105.06, while the euro EUR=EBS rose 0.22% against the dollar to 1.0813.
The PPI data, which can be volatile, comes a day before the more important consumer price index (CPI) is released for April, data that should provide better insight into how fast the Fed might cut interest rates.
One data print will not be enough to convince policymakers that the pace of inflation is slowing, Tierry Wizman, global FX and rates strategist at Macquarie in New York.
"It's going to take at least three months of downside inflation to dispel the idea that we are no longer dis-inflating. So that takes a while," Wizman said.
"We actually think the Fed may not cut at all this year and if it does cut, it'll probably cut once and it'll be late in the year," he said. "If we're starting to get a real downward move in rent inflation in the U.S., it may change our mind."
The producer price index for final demand rose 0.5% in April after falling by a downwardly revised 0.1% in March, the Labor Department's Bureau of Labor Statistics said.
Economists polled by Reuters had forecast the PPI gaining 0.3% after a previously reported 0.2% rise in March. In the 12 months through April, the PPI increased 2.2% as expected after climbing 1.8% in March.
Fed Chair
Jerome Powell
said the PPI report was more "mixed" than "hot," given that prior data was revised lower even as April's data came in higher than expected.
"I wouldn't call it hot, I'd call it mixed," Powell said at an event in Amsterdam after the report's release.
The Fed's restrictive monetary policy may take longer than expected to bring inflation down, "but we will get inflation back to 2%," he also said.
Wednesday's report on core consumer prices is expected to show CPI rose 0.3% month-on-month in April, down from a 0.4% growth the prior month, according to a Reuters poll.
Money markets have dialed back their expectations of Fed rate cuts to about 44 basis points of easing this year, according to LSEG data.
Earlier in Europe, sterling fell sharply before paring losses after Bank of England Chief Economist Huw Pill said it was not unreasonable to believe that over summer there might be enough confidence to consider rate cuts.
Sterling GBP=D3 rose 0.17% to 1.2580 after falling to $1.2510 following Pill's remarks.
Traders are also closely watching the yen JPY=EBS , down to May 1 levels, which then saw suspected interventions by Japanese authorities. It was last 0.07% lower at 156.35 per dollar.
Japan's Ministry of Finance is suspected to have intervened in the currency market at the end of April through early May after the yen hit a 34-year low of 160.245 on April 29.
But the market remains bearish on the currency given the massive gap between Japan's ultra-low yields and those in other major economies.
Japan's Finance Minister Shunichi Suzuki said the government will closely work with the Bank of Japan on the foreign exchange to ensure there is no friction between their mutual policy objectives.
The Chinese offshore yuan was trading near a two-week low after U.S. President Joe Biden unveiled a bundle of steep tariff increases on an array of Chinese imports, including electric vehicles, computer chips and medical products.
The offshore yuan CNH=D3 was last flat on the day at 7.240, after falling earlier in the day to it lowest level since May 5.
China's Commerce Ministry said the country is "strongly dissatisfied with U.S. tariff hike."
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