Dollar rises on higher yields ahead of PPI, ECB decision

The dollar traded stronger across the board as the North American session opened. Its biggest advance was against the yen, up 0.36%, with the Swiss franc and Canadian dollar trailing at gains of 0.16% and 0.12%, respectively.

Treasury yields rose ahead of the crucial U.S. producer price index release, which underpinned the dollar's strength. The consumer price index follows on Thursday, and together the two reports will influence market views before the Fed's policy meeting next week.

The euro edged lower before the European Central Bank's rate announcement at 8:15 AM ET. The ECB is forecast to lift its refinancing rate by 25 basis points to 2.65% from 2.40%.

The key data point on the calendar is the August producer price index at 8:30 AM ET. Headline PPI is projected to rise 0.4% month-on-month after July's flat reading, bringing the annual rate to 5.3% from 4.7%. The core measure, excluding food and energy, is seen climbing 0.3% versus 0.2% previously, lifting the yearly core rate to 4.6% from 4.2%. With oil above $100 a barrel and the Fed's meeting next week, a stronger-than-expected print may stoke inflation fears and rate hike bets. A weaker figure could ease bond market pressure and potentially drag the dollar lower.

Today's other scheduled releases:

• 8:15 AM ET: ECB refinancing rate seen climbing to 2.65% from 2.40%
• 8:15 AM ET: ECB deposit rate forecast to rise to 2.50% from 2.25%
• 8:30 AM ET: Initial jobless claims expected at 205,000, down from 206,000
• 8:30 AM ET: Continuing claims seen at 1.780 million, compared to 1.779 million prior
• 10:00 AM ET: Existing-home sales projected at 3.98 million, versus 4.06 million previously
• 10:00 AM ET: Existing-home sales change: prior reading −1.7%
• 10:00 AM ET: Wholesale inventories seen increasing 1.3%
• 10:00 AM ET: Wholesale sales: previous month fell 3.0%

US equity futures are mixed ahead of the PPI data. The Dow is pointing higher, the S&P 500 is roughly flat, and the Nasdaq is under pressure on tech weakness. The major averages have fallen for three straight sessions, with yesterday's declines of 0.77% for the Dow, 0.48% for the S&P 500, and 0.64% for the Nasdaq. The S&P 500 and Nasdaq closed below their 100- and 200-hour moving averages.

• Dow: +96 points
• S&P 500: +1.5 points
• Nasdaq: −116 points

European shares were mostly higher, though gains were modest. The UK's FTSE 100 was an outlier.

• Euro Stoxx 50: +0.11%
• Germany's DAX: +0.01%
• France's CAC: +0.19%
• U.K.'s FTSE 100: −0.29%
• Spain's Ibex: +0.27%
• Italy's FTSE MIB: +0.36%

Overall, trading was cautious with markets awaiting the US inflation figures and the ECB decision.

On the political front, President Trump at a Wednesday GOP rally in Dallas framed the November election as a referendum on his presidency. He urged supporters to vote as if his name were on the ballot and cautioned that a Democratic win would undo his policies on immigration, taxes, crime, and the economy.

Trump also proposed a $5,000 "Trump dividend" for every adult US citizen if Republicans keep the House and Senate. He said tariff revenue could help fund the plan, but provided few details, and congressional approval would probably be needed.

Market-relevant comments centered on Iran and oil. Trump stated that the conflict with Iran would end "immediately after the election," accusing Tehran of trying to sway the midterms. He left room for negotiations but said the US is not seeking a deal now and that his goals go beyond a nuclear accord.

On oil, Trump admitted that lowering prices would "take a little longer," but forecast a decline soon after the election. He also predicted gasoline would eventually drop below $2 per gallon.

The market interpretation is that Trump is not indicating a near-term reduction in tensions with Iran. Given existing Middle East risks to global supply, this could maintain a geopolitical risk premium on crude oil through the November election.

Overnight Middle East tensions stayed elevated, underpinning a geopolitical risk premium on oil. Iran claimed it attacked 10 vessels near the Strait of Hormuz in retaliation for US strikes on Iranian tankers, but the US denied any of its ships were hit. The Iran-backed Houthis expanded their Yemen operations and moved closer to the Bab el-Mandeb Strait, another critical shipping lane, while Saudi Arabia continued retaliatory airstrikes after attacks on its airbase and oil infrastructure. With no immediate diplomatic solution in sight, the risks to oil supplies and inflation remain skewed to the upside. Crude oil rose $1.65, or 1.72%, to $97.70, with a high of $97.84. Brent crude was at $102.90 after breaking back above $100 yesterday.