Back on inflation watch as US CPI set to drop

We will get a momentary break from the trade war today with US inflation data due at 8:30 am ET (1230 GMT).

It’s tough to say how the Fed is evaluating these data points because so much is happening so quickly.

Tariffs spiked in April but it takes some time for shipments to come through and turn into inflation. Then this week, the US dropped tariff rates on China. At the same time, OPEC production hikes and global economic gloom tanked oil prices in the month.

Add it all up and economists are forecasting both headline and core CPI up 0.3% m/m. The y/y readings are expected at +2.4% and +2.8%, respectively.

I’d expect some dollar volatility on the release and I can see Fed implied probabilities bouncing around. Currently we’re 40% priced for a July 30 rate cut and there are 81 bps priced in for the year ahead.

This article was written by Adam Button at www.forexlive.com.