US CPI Preview: Inflation to confirm Fed rate cut prospects


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
Thursday
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).”


 

Central
banks
FAQs

Central
Banks
have
a
key
mandate
which
is
making
sure
that
there
is
price
stability
in
a
country
or
region.
Economies
are
constantly
facing
inflation
or
deflation
when
prices
for
certain
goods
and
services
are
fluctuating.
Constant
rising
prices
for
the
same
goods
means
inflation,
constant
lowered
prices
for
the
same
goods
means
deflation.
It
is
the
task
of
the
central
bank
to
keep
the
demand
in
line
by
tweaking
its
policy
rate.
For
the
biggest
central
banks
like
the
US
Federal
Reserve
(Fed),
the
European
Central
Bank
(ECB)
or
the
Bank
of
England
(BoE),
the
mandate
is
to
keep
inflation
close
to
2%.

A
central
bank
has
one
important
tool
at
its
disposal
to
get
inflation
higher
or
lower,
and
that
is
by
tweaking
its
benchmark
policy
rate,
commonly
known
as
interest
rate.
On
pre-communicated
moments,
the
central
bank
will
issue
a
statement
with
its
policy
rate
and
provide
additional
reasoning
on
why
it
is
either
remaining
or
changing
(cutting
or
hiking)
it.
Local
banks
will
adjust
their
savings
and
lending
rates
accordingly,
which
in
turn
will
make
it
either
harder
or
easier
for
people
to
earn
on
their
savings
or
for
companies
to
take
out
loans
and
make
investments
in
their
businesses.
When
the
central
bank
hikes
interest
rates
substantially,
this
is
called
monetary
tightening.
When
it
is
cutting
its
benchmark
rate,
it
is
called
monetary
easing.

A
central
bank
is
often
politically
independent.
Members
of
the
central
bank
policy
board
are
passing
through
a
series
of
panels
and
hearings
before
being
appointed
to
a
policy
board
seat.
Each
member
in
that
board
often
has
a
certain
conviction
on
how
the
central
bank
should
control
inflation
and
the
subsequent
monetary
policy.
Members
that
want
a
very
loose
monetary
policy,
with
low
rates
and
cheap
lending,
to
boost
the
economy
substantially
while
being
content
to
see
inflation
slightly
above
2%,
are
called
‘doves’.
Members
that
rather
want
to
see
higher
rates
to
reward
savings
and
want
to
keep
a
lit
on
inflation
at
all
time
are
called
‘hawks’
and
will
not
rest
until
inflation
is
at
or
just
below
2%.

Normally,
there
is
a
chairman
or
president
who
leads
each
meeting,
needs
to
create
a
consensus
between
the
hawks
or
doves
and
has
his
or
her
final
say
when
it
would
come
down
to
a
vote
split
to
avoid
a
50-50
tie
on
whether
the
current
policy
should
be
adjusted.
The
chairman
will
deliver
speeches
which
often
can
be
followed
live,
where
the
current
monetary
stance
and
outlook
is
being
communicated.
A
central
bank
will
try
to
push
forward
its
monetary
policy
without
triggering
violent
swings
in
rates,
equities,
or
its
currency.
All
members
of
the
central
bank
will
channel
their
stance
toward
the
markets
in
advance
of
a
policy
meeting
event.
A
few
days
before
a
policy
meeting
takes
place
until
the
new
policy
has
been
communicated,
members
are
forbidden
to
talk
publicly.
This
is
called
the
blackout
period.