CPI Data Expectations: US Inflation Analysis

• The annualized US Consumer Price Index is expected to rise to 5.0% in April, holding steady from March’s figures.
• Core CPI inflation is forecast to come in at 5.5% yoy in April, down from 5.6% in March.
• The US CPI could have a significant impact on the Fed’s rate outlook.

Publication of Consumer Price Index (CPI) for Aprilreleased by the US Bureau of Labor Statistics (BLS), is scheduled for release on May 10 at 12:30 GMT.

The US dollar (USD) has been attempting a tepid recovery after April’s strong Non-Farm Payrolls report. On Monday, the Federal Reserve (Fed) released the Official Lending Survey for the first quarter, which showed that credit conditions in the United States were less grim than expected, which is also helping the dollar rebound.

Markets are now eagerly awaiting inflation data to gauge how the Fed might adjust its monetary policy at its next meeting in Junein search of new valuations of the Dollar.

What can we expect from the next CPI report?

The US Consumer Price Index data, on an annualized basis, is expected to rise 5.0% in Aprilat the same rate as in March. Core CPI, which excludes food and energy price volatility, will rise 5.5%slightly below the 5.6% in March.

On a monthly basis, the Consumer Price Index is expected to accelerate, with an increase of 0.4% in April, compared to 0.1% in March. However, Core CPI is expected to continue rising by 0.4%at the same rate as the previous month.

US CPI data will be of the utmost relevance to the Federal Reserve, as the US central bank made it clear at its May 3rd policy meeting that “will take a data-driven approach to determine the scope of further rate hikes“, while high inflation levels and banking sector tensions remain in the spotlight. The Fed raised the target range for the federal funds rate by 25 basis points (bp) expected, to 5.0%- 5.25% However, Federal Reserve Chairman Jerome Powell struck a cautious tone during his press conference, noting that the Fed is prepared to adjust the monetary policy stance as appropriate if risks arise.

US bank shares plunged last week, given the continuation of the crisis of confidence in the country’s banking sector. California-based PacWest shares plunged 50%, while Western Alliance shares also fell nearly 40%. The sell-off in bank shares has gained steam this week after the First Republic was seized by regulators and sold to the largest US bank, JPMorgan Chase.

Analysts at TD Securities offer a brief preview of the main macroeconomic data, explaining: “This week, the markets’ attention will be focused on the CPI data for April, after a report on payrolls that was less strong than they suggested. headlines. We expect core inflation to hold firm again, rising strongly to 0.4%m/m for the second month in a row, as goods inflation is likely to continue to gain momentum.”

When will the Consumer Price Index be reported and how could it affect EUR/USD?

The CPI report will be released on May 10 at 12:30 GMT. A softer-than-expected reading, especially on monthly core inflation, could raise expectations of a Fed rate cut in the second half of this year.. According to the CME Group’s FedWatch tool, markets currently price a 90% chance of a Fed pause in June, while they see a 33% chance of a rate cut as early as July.

Last week’s rise in US non-farm payrolls and comments from Jerome Powell pushed back market expectations for a rate cut this year, but overnight index swaps (OIS) only partially cut rate cut expectations for July. US Nonfarm Payrolls (NFP) headline data increased by 253,000 in April, above expectations of 179,000 and previous reading of 165,000. The unemployment rate unexpectedly dipped to 3.4% in April, while annualized mean hourly earnings rose to 4.4% in the reported month versus 4.2% expected.

Wage inflation unexpectedly accelerated in April and therefore CPI data for April will be closely watched to see if the Fed could stay on hold for longer before opting for rate cuts later this year.

A lower CPI will reinforce market expectations that the Fed will cut rates sooner rather than later, which will rekindle the downtrend of the dollar. This, in turn, should allow the EUR/USD pair to resume its bullish momentum, targeting the 1.1100 level again. On the other hand, surprisingly strong inflation data in the United States could trigger a revision of the Fed’s interest rate outlook, which in turn would give additional impetus to the ongoing recovery of the US dollar.

The market reaction will be immediate, as any significant divergence from the expected readings should infuse the markets with a lot of volatility and allow traders to take advantage of short-term opportunities around the EUR/USD pair.

Meanwhile, Dhwani Mehta, Principal Analyst for the Asian session at FXStreet, offers a brief technical outlook for the pair, explaining: “EUR/USD has settled below the critical short-term support of the 21-day moving average (DMA). ) at 1.0997 on Tuesday However, the 14-day Relative Strength Index (RSI) continues to defend the mid-line, so Euro buyers remain hopeful“.

Dhwani also outlines the important technical levels for the EUR/USD pair: “To the upside, EUR/USD buyers need to find a foothold above the bullish 21 SMA support turned resistance, above which the price could be challenged. Monday’s maximum 1.1053. A sustained break above this level would reopen the doors to the yearly high of 1.1095“.

About the Consumer Price Index

The CPI is published by the US Labor Department and measures price movements by comparing retail prices for a representative basket of goods and services. The purchasing power of the dollar is diminished due to inflation. The CPI is a key indicator for measuring inflation and purchasing trends. A reading above expectations is bullish for the dollar, while a reading below is bearish.