The upcoming release of the US Consumer Price Index (CPI) data for July is expected to show a 2.9% year-over-year increase, slightly lower than June’s 3% rise. Core CPI inflation is also forecasted to soften to 3.2% annually. These inflation figures could play a crucial role in determining the likelihood of a 50 basis points Fed rate cut in September.
The Bureau of Labor Statistics (BLS) will unveil the CPI data on Wednesday at 12:30 GMT, triggering potential volatility in the US Dollar (USD) as investors adjust their expectations for the Federal Reserve’s monetary policy decisions.
Key Points to Watch in the CPI Report
Analysts predict a 0.2% month-over-month increase in the US CPI for July, following a 0.1% decline in June. Additionally, core CPI inflation is expected to rise by 0.2% in July, down from 0.3% in the previous month.
The recent weak jobs report in the US has fueled speculations of multiple rate cuts by the Fed, starting as early as September. While Fed Chairman Jerome Powell did not confirm a rate cut in the last policy meeting, the market is currently pricing in a 50% probability of a 50 bps reduction next month.
Analysts at TD Securities anticipate a rebound in energy prices and a moderate increase in core CPI for July, signaling controlled inflation levels in the economy.
Market Impact and Potential Scenarios
The outcome of the CPI report could sway investor sentiment regarding the Fed’s rate cut decisions. A higher than expected core CPI could lead to a 25 bps rate reduction in September, boosting US Treasury yields and strengthening the USD against other currencies.
Conversely, a lower core CPI reading may reinforce expectations of a 50 bps rate cut, putting downward pressure on the USD in the forex market.
Technical analysis of EUR/USD suggests a bullish bias, with key resistance levels at 1.0950 and 1.1000. On the downside, support levels are identified at 1.0880, 1.0830, and 1.0800.
Understanding the Consumer Price Index (CPI)
The CPI measures inflationary trends by tracking changes in the prices of a basket of goods and services. A high CPI reading is considered bullish for the USD, while a low reading is seen as bearish. The YoY CPI data is crucial for assessing inflation levels and consumer purchasing power.
For more detailed information on the CPI and its impact on the financial markets, you can visit the official website of the US Department of Labor Statistics.