May’s US producer inflation surged to a 3.5-year high, reinforcing expectations of a potential Fed rate hike later this year.
The USD/CAD pair climbed to near 1.3980 in early European trading Friday, driven by stronger-than-expected US Producer Price Index data for May. The annual PPI rose at its fastest pace in three and a half years, fueled by energy cost increases amid Middle East tensions.
Thursday’s data showed PPI inflation exceeding forecasts, with the largest annual gain since late 2020. Analysts noted the Fed is falling further behind its inflation target, raising odds of a rate hike in coming months. The Michigan Consumer Sentiment Index for June is due later Friday.
Uncertainty over a US-Iran peace deal added to market caution. Iran denied finalizing an agreement, while US forces intercepted Iranian drones near the Strait of Hormuz.