The US Consumer Price Index (CPI) figures were released today at 12:30 GMT by the US Bureau of Labour Statistics (BLS). The most important inflation statistic is expected to influence the Fed’s rate outlook and the USD’s value.
The US Consumer Price Index was forecast to rise 3.1% in June, down from the 4% increase seen in May. Core CPI inflation is expected to come at 5% YoY in June, compared to 5.3% in May.
Headline CPI dropped to 4% year-on-year in May – and is expected to continue slowing down to 3.1% YoY in June. Core CPI remained high at 5.3% YoY, and is forecast to come at 5% YoY in June. In MoM terms, headline is anticipated at 0.3% compared to 0.1% in May and core is expected to have slowed to 0.3% compared to 0.4% in May.
USD remained weak ahead of the inflation data
The United States dollar (USD) remained weak ahead of the key US inflation report, following a mixed June jobs report. Although the Federal Reserve (Fed) is expected to deliver another 25 basis points rate hike in July, markets do not expect additional rate hikes later this year.
The US CPI inflation data is anticipated to move the greenback and affect the central bank’s outlook. Market participants will keep a close eye on the report and analyse the details to ascertain whether core inflation is showing signs of easing.
On Monday, the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations showed that the US consumers’ one-year inflation expectation fell to the lowest level since April 2021 down from 4.1% in May to 3.8% in June. This has pushed the USD lower at the start of the week.
Federal Reserve Vice Chair for Supervision Michael Barr said on Monday that there has been progress in inflation and that they remain focused on bringing inflation down to target. We still have “a bit of work to do”, he stressed. Cleveland Fed President Loretta Mester also reiterated the need for further tightening to bring inflation down to the 2% target.
What to expect from the USD?
If inflation slows down, then the USD could weaken. A weak reading will indicate zero rate hikes after this month. But a reading of 0.4% or higher would raise expectations for another Fed hike.
If the number is much higher and takes markets by surprise, then the USD will recover and reverse its past week’s losses, with the market pricing in more rate hikes in September and beyond.
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