The US Consumer Price Index (CPI) is set to rise 2.6% YoY in August, a slower pace compared to July’s 2.9% increase. Meanwhile, annual core CPI inflation is expected to remain at 3.2%. This inflation data could have a significant impact on the market’s expectations for a 50 bps Fed rate cut in September, potentially leading to volatility in the US Dollar.
What to Expect in the Upcoming CPI Data Report?
In August, US CPI is projected to increase by 2.6% annually, down from July’s 2.9% rise. Core CPI, excluding food and energy prices, is expected to stay steady at 3.2%. Both CPI and core CPI are forecasted to rise by 0.2% monthly, matching July’s figures.
Analysts from TD Securities predict that core CPI prices will remain under control in August, with services inflation playing a crucial role. They also anticipate headline inflation to be subdued due to deflation in energy prices.
Impact on EUR/USD and Market Expectations
The market’s anticipation of a 50 bps Fed rate cut in September will be tested with the release of the September inflation data. Following a mixed August jobs report, the probability of a large rate reduction has decreased. Investors will closely watch the CPI data to gauge the Fed’s next move.
If the monthly core CPI comes in at 0% or negative, expectations for a 50 bps cut could be revived, leading to a USD selloff. Conversely, a 0.3% or stronger increase could confirm a 25 bps cut and support the USD against other currencies.
EUR/USD’s technical outlook suggests a lack of buyer interest, with key support levels at 1.1000 and 1.0950-1.0930. Resistance levels are at 1.1070-1.1080, 1.1200, and 1.1275.
Analysis and Conclusion
The upcoming US Consumer Price Index report has the potential to sway market expectations for a Fed rate cut in September, which could impact the value of the US Dollar against other currencies. Investors should closely monitor the CPI data to assess the likelihood of a rate reduction and adjust their investment strategies accordingly.