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Rising PPI and Unemployment Concern Feds, Traders

The Producer Price Index (PPI) is an important piece of economic data since it predicts future inflation. Because of the positive association between inflation and interest rates, traders monitor PPI in forex trading, but ultimately, traders are concerned with how the resulting interest rate changes are expected to affect currency pairs.

Forex traders can use the Consumer Price Index (CPI) as a leading indicator to forecast consumer inflation (CPI). A positive rise in the PPI index indicates that costs are growing, and that price increases are eventually passed on to consumers. If this effect is large enough, subsequent CPI data will rise to reflect an increase in the overall level of prices.

When prices rise dramatically, the purchasing power of a country’s currency falls, requiring a reduction in production and a decline in employment. Central banks effectively lower inflation by raising the benchmark interest rate in an attempt to prevent the erosion of purchasing power.

In the midst of a shift in the US labor market, initial claims for unemployment insurance totaled 260,000 last week, near the highest level since November.

The total for the week ended July 30 was in line with the Dow Jones estimate but a gain of 6,000 from the previous week’s downwardly revised level, the Labor Department reported Thursday.

The unemployment claims numbers come a day before the Bureau of Labor Statistics releases its much anticipated nonfarm payrolls report for July. That is expected the show the U.S. economy added 258,000 positions in the month, compared with the 372,000 initial June estimate and the lowest total since December 2020.

Federal Reserve officials are keenly monitoring the labor market for signals about an economy that is experiencing the highest inflation rate in more than 40 years.

The unemployment claims four-week moving average, which smooths out weekly volatility, indicates the shift in the labor market. This figure increased by 6,000 from the previous week to 254,750, a significant increase from the previous week’s low of 170,500 on April 2 and the highest level of the year.

Continuing claims, which are released a week after the headline figure, reached 1.42 million, up 48,000 from the previous week and 83,000 from the start of July.

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  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.