US dollar gains momentum ahead of US CPI test

US CPI, US Dollar Analysis and News

  • USD to extend gains at higher-than-expected CPI pressure
  • US CPI is expected to remain at 8.3%

The USD got its foot back as we enter today’s CPI report with a helping hand from yesterday’s ECB decision. In general, little in the way of surprises from the ECB that confirmed the normalization path as priced in by money markets with a 25bps rate hike in July and a potential for a larger hike in September. However, the failure to surprise on the falconry side, given the high bar to do so, eventually took the Euro lower, with the single currency testing 1.06.

The most important event for today will be the latest US CPI report, where the headline rate is expected to remain at 8.3%. while the core figure drops by 0.3ppts to 5.9%. The White House has already warned that the forthcoming inflation report will be increased, but the question is whether this means inflation will be above or below expectations, which from a trader’s point of view is the most important factor. As such, should we see inflation above expectations, it is likely to push up USD and US yields higher, while also weighing on risk sentiment.

VPI data

  • CPI expects 8.3% (previous 8.3%), range 8% -8.5%
  • Core CPI expects 5.9% (previous 6.2%), range 5% -6.3%

The CPI and Forex: How CPI Data Affects Currency Prices

The table below shows the multi-asset response to US CPI in recent months. Given the recent view that inflation and rates have peaked, should we see inflationary pressures that are either in line with expectations or above expectations, we can expect a similar reaction as last month.

Figure 1. Multi-asset response to US CPI

Source: techlives, Refinitiv, Bloomberg

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