- US Consumer Price Index expectations rise, leaving less room for an upside surprise.
- Core CPI for January is expected to hold at 0.4%, still a high pace.
- US dollar traders will scrutinize the data for clues about the upcoming Federal Reserve decision.
The US Consumer Price Index (CPI) report for January is expected to reveal an uptick in its month-on-month expansion. The US CPI data will be published by the Bureau of Labor Statistics (BLS) on Tuesday, February 14 at 13:30 GMT. The US dollar (USD) has been rallying in recent days on the back of the strong US jobs report and this pattern will be put to the test by the outcome of the CPI data.
The United States (US) inflation report will be released after the Federal Reserve’s February monetary policy decision and could significantly affect the valuation of the USD.
How much will the US January CPI go up?
In annual terms, the CPI is expected to fall to 6.2% in Januarycompared to 6.5% in December. Core CPI, which excludes food and energy price volatility, is expected to decline to 5.5% from 5.7%. In monthly terms, the CPI would rise to 0.5%, versus 0.1% previously. For his part, the underlying CPI would remain at 0.4%the same figure for December after a later review of the data.
Investors will closely watch the US CPI report, as it is the most influential macroeconomic indicator for measuring consumer inflation, and provides significant information on the Federal Reserve’s monetary policy outlook.
The ANZ economists agree with expectations of high inflation figures and believe that the Federal Reserve will continue its tightening path:
“We expect US Core CPI to have risen 0.3%m/m in January, while rising energy prices should translate into a 0.5% headline CPI rise. Fed guidance likely to remain hawkish until you get a clearer idea that basic services, excluding housing inflation, and labor market stickiness are starting to ease. On a year-on-year basis, we expect January’s core CPI to decline to 5.4% from 5.7% and the headline index to 6.2% from 6.5%.”
The US Consumer Price Index, the most impactful macroeconomic release for the EUR/USD
The publication of the Consumer Price Index is scheduled for 13:30 GMT on February 14. The monthly CPI data will attract more attention, as it is likely to rebound and emerge as a concern for the Federal Reserve. Besides, the downward trend in annualized inflation is not considered a surprise after having peaked at 9.1% in June last year.
A softer-than-expected reading would reinforce market expectations that the Fed could pause in its tightening of monetary policy after the first quarter, which would trigger further selling around the US dollar.
This, in turn, should allow the EUR/USD pair to start a significant recovery above the 1.0800 level. Conversely, a surprisingly bullish US CPI could bolster expectations of further Fed rate hikes and boost the dollar’s recovery.
US CPI data is likely to set the tone for markets in the coming weeks, ahead of February jobs data and another CPI release ahead of the Fed’s March policy meeting.
Nevertheless, any significant divergence from expected readings should instill some volatility in the markets and allow traders to take advantage of short-term opportunities around the EUR/USD pair.
Dhwani MehtaOffering a brief technical outlook for the major pairs, Senior Analyst at FXStreet explains: “The EUR/USD pair has managed to regain ground above the 50-day SMA in the run-up to the US CPI. However, the 14-day Relative Strength Index (RSI) continues below the midline, warranting caution for Euro bulls.”
Dhwani also outlines important technical levels for trading EUR/USD: “Buyers need to find acceptance above the psychological barrier of 1.0750 to take advantage of the recovery from the five-week low of 1.0655. Above, the static resistance of 1.0800 It will be the level to be beaten by the bulls. On the other hand, if the 50-day SMA gives again, the multi-week low will be retested. 1.0655. A sustained break below this latter level would open the door for a test of the round level of 1.0600.”
About the Consumer Price Index
The Consumer Price Index published by the Bureau of Labor Statistics is a statistical measure that compares retail prices for a basket of products and services. The purchasing power of consumers is dragged down by rising inflation. The CPI is the most relevant indicator to measure inflation and adjustments in purchasing patterns. Generally, higher-than-expected readings make the US dollar relatively stronger, while low readings make it weaker against other currencies.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
