US core CPI inflation expected to hold steady in June


content provided with permission by FXStreet


  • The
    US
    Consumer
    Price
    Index
    is
    forecast
    to
    rise
    3.1%
    YoY
    in
    June,
    at
    a
    softer
    pace
    than
    May’s
    3.3%
    increase.

  • Annual
    core
    CPI
    inflation
    is
    expected
    to
    hold
    steady
    at
    3.4%.

  • The
    inflation
    data
    could
    confirm
    or
    deny
    a
    Fed
    rate
    cut
    in
    September
    and
    drive
    the
    US
    Dollar
    valuation.

The
Bureau
of
Labor
Statistics
(BLS)
will
publish
the
highly
anticipated
Consumer
Price
Index
(CPI)
inflation
data
from
the

United
States

(US)
for
June
on
Wednesday
at
12:30
GMT.

The
US
Dollar
(USD)
braces
for
intense
volatility,
as
any
surprises
from
the
US
inflation
report
could
significantly
impact
the
market’s
pricing
of
the
Federal
Reserve
(Fed)
interest
rate
cut
expectations
in
September.

What
to
expect
in
the
next
CPI
data
report?

Inflation
in
the
US,
as
measured
by
the
CPI,
is
expected
to
increase
at
an
annual
rate
of
3.1%
in
June,
down
from
the
3.3%
rise
reported
in
May.
The
core
CPI
inflation,
which
excludes
volatile
food
and
energy
prices,
is
seen
holding
steady
at
3.4%
in
the
same
period.

Meanwhile,
the
US
CPI
is
set
to
rise
0.1%
MoM
in
June
after
staying
unchanged
in
May.
Finally,
the
monthly
core
CPI
inflation
is
forecast
to
rise
0.2%
to
match
the
previous
increase.

Federal
Reserve
(Fed)

Chairman
Jerome
Powell

delivered
the
Semi-Annual
Monetary
Policy
Report
and
testified
before
US
Congress
earlier
in
the
week.
In
his
prepared
remarks,
Powell
reiterated
that
it
will
not
be
appropriate
to
cut
the
policy
rate
until
they
gain
greater
confidence
in
inflation
heading
sustainably
toward
2%.
When
asked
about
the
latest
developments
in
the
jobs
market,
“the
most
recent
labor
market
data
sent
a
pretty
clear
signal
that
the
labor
market
has
cooled
considerably,”
he
noted.
In
the
end,
his
remarks
failed
to
move
the
needle
with
respect
to
market
pricing
of
a
Fed
rate
cut
in
September.
According
to
the
CME
FedWatch
Tool,
the
probability
of
the
Fed
leaving
the
policy
rate
unchanged
in
September
stands
at
around
26%,
virtually
unchanged
from
where
it
stood
before
this
event.

Previewing
the
June
inflation
data,
“we
expect
the
June
CPI
report
to
show
that
core
prices
remained
largely
under
control
after
posting
a
surprisingly
soft
0.16%
gain
in
May,”
said
TD
Securities
analysts
in
a
weekly
report.

“Headline
inflation
likely
printed
flat
m/m
again
(-0.01%)
as
energy
prices
continue
to
provide
large
relief.
Note
that
our
unrounded
core
CPI
forecast
at
0.18%
m/m
suggests
larger
risks
for
another
dovish
surprise
to
a
rounded
0.1%
increase,”
analysts
added.

How
could
the
US
Consumer
Price
Index
report
affect
EUR/USD?

Investors
remain
optimistic
about
a
Fed
rate
cut
in
September,
but
the
market
positioning
suggests
they
are
not
fully
convinced
yet.
Hence,
a
smaller-than-forecast
increase
in
the
monthly
core
CPI,
a
reading
of
0.1%
or
smaller,
could
confirm
a
policy
pivot
in
September.
In
this
scenario,
the
US
Dollar
could
come
under
selling
pressure
with
the
immediate
reaction.

On
the
other
hand,
an
increase
of
0.3%
or
bigger
could
highlight
a
lack
of
progress
in
disinflation
and
cause
market
participants
to
reassess
the
probability
of
an
interest
rate
reduction
in
September.
In
this
case,
investors
could
price
in
a
widening
policy
gap
between
the
European
Central
Bank
(ECB)
and
the
Fed,
opening
the
door
for
a
sharp
decline
in
EUR/USD
in
the
near
term.

Eren
Sengezer,
European
Session
Lead
Analyst
at

FXStreet
,
offers
a
brief
technical

outlook

for
EUR/USD
and
explains:
“EUR/USD
holds
above
the
100-day
and
the
200-day
Simple
Moving
Averages
(SMA)
following
the
pullback
seen
earlier
in
the
week,
reflecting
sellers’
hesitancy.
Additionally,
the
Relative
Strength
Index
(RSI)
indicator
on
the
daily
chart
holds
above
50
ahead
of
the
US
inflation
data,
indicating
a
slightly
bullish
bias
in
the
short
term.”

“The

Fibonacci

23.6%
retracement
level
of
the
mid-April-June
uptrend
forms
interim
resistance
at
1.0850.
Once
EUR/USD
clears
this
level,
it
could
face
next
resistance
at
1.0900-1.0915
(psychological
level,
June
4
high)
before
targeting
1.1000.
On
the
downside,
technical
sellers
could
take
action
and
force
EUR/USD
to
stretch
lower
if
the
pair
drops
below
1.0800
(100-day
SMA,
200-day
SMA)
and
starts
using
this
level
as
resistance.
In
this
scenario,
1.0750
(20-day
SMA)
could
be
seen
as
the
next
support
before
1.0680
(Fibonacci
78.6%
retracement).”

Fed
FAQs

Monetary
policy
in
the
US
is
shaped
by
the
Federal
Reserve
(Fed).
The
Fed
has
two
mandates:
to
achieve
price
stability
and
foster
full
employment.
Its
primary
tool
to
achieve
these
goals
is
by
adjusting
interest
rates.
When
prices
are
rising
too
quickly
and
inflation
is
above
the
Fed’s
2%
target,
it
raises
interest
rates,
increasing
borrowing
costs
throughout
the
economy.
This
results
in
a
stronger
US
Dollar
(USD)
as
it
makes
the
US
a
more
attractive
place
for
international
investors
to
park
their
money.
When
inflation
falls
below
2%
or
the
Unemployment
Rate
is
too
high,
the
Fed
may
lower
interest
rates
to
encourage
borrowing,
which
weighs
on
the
Greenback.

The
Federal
Reserve
(Fed)
holds
eight
policy
meetings
a
year,
where
the
Federal
Open
Market
Committee
(FOMC)
assesses
economic
conditions
and
makes
monetary
policy
decisions.
The
FOMC
is
attended
by
twelve
Fed
officials

the
seven
members
of
the
Board
of
Governors,
the
president
of
the
Federal
Reserve
Bank
of
New
York,
and
four
of
the
remaining
eleven
regional
Reserve
Bank
presidents,
who
serve
one-year
terms
on
a
rotating
basis.

In
extreme
situations,
the
Federal
Reserve
may
resort
to
a
policy
named
Quantitative
Easing
(QE).
QE
is
the
process
by
which
the
Fed
substantially
increases
the
flow
of
credit
in
a
stuck
financial
system.
It
is
a
non-standard
policy
measure
used
during
crises
or
when
inflation
is
extremely
low.
It
was
the
Fed’s
weapon
of
choice
during
the
Great
Financial
Crisis
in
2008.
It
involves
the
Fed
printing
more
Dollars
and
using
them
to
buy
high
grade
bonds
from
financial
institutions.
QE
usually
weakens
the
US
Dollar.

Quantitative
tightening
(QT)
is
the
reverse
process
of
QE,
whereby
the
Federal
Reserve
stops
buying
bonds
from
financial
institutions
and
does
not
reinvest
the
principal
from
the
bonds
it
holds
maturing,
to
purchase
new
bonds.
It
is
usually
positive
for
the
value
of
the
US
Dollar.