- The US consumer price index is expected to rise 4.2% in May, down from a 4.9% rise in April.
- Core CPI inflation in May is expected to be 5.6% y/y, rising slightly faster than April’s 5.5% growth.
- US CPI inflation data will affect the Fed’s interest rate outlook and unsettle the US dollar market.
The long-awaited May Consumer Price Index (CPI) inflation data will be released from the US Bureau of Labor Statistics (BLS) on June 13 at 12:30 GMT.
The US dollar (USD) is trading very volatile ahead of the important US inflation report after a mixed May non-farm payrolls report. A recent string of disappointing US economic data has bolstered hopes that rate hikes will be put on hold this Wednesday when the US Federal Reserve ends its two-day policy meeting. .
US CPI inflation data could influence Fed decision and shed new light on whether the world’s most powerful central bank will live up to market expectations and put the brakes on the tightening cycle . Therefore, the release of this top-level US economic indicator is likely to have a significant impact on the US dollar’s valuation.
What to expect from the next CPI data report?
Yearly US consumer price index data is expected to rise 4.2% in May by market consensus, slowing compared to the 4.9% rise recorded in April. Meanwhile, the core CPI reading, which excludes volatile food and energy prices, is expected to rise by 5.6%, a slightly faster pace than April’s 5.5% rise.
The monthly consumer price index rose by 0.4% in the fourth month of this year and is expected to rise by 0.3% in May. However, core CPI is expected to rise 0.4%, the same pace as the previous month.
Fed Chairman Jerome Powell told the annual Thomas Laubach study conference last month that it would take “some time” for inflation to slow and that he would continue to monitor the data when considering whether to raise rates next month. rice field.
Given recent Fed communications and the economic downturn, it is widely expected that the Fed may forego rate hikes at this meeting and tighten further afterward. The recently released US ISM Services PMI and weekly jobless claims were disappointing and caused economic concerns. Markets have priced in about an 80% chance of a further Fed pause this week on hopes that US inflationary pressures will ease further.
But last week, especially after the Bank of Canada (BoC) announced an unexpected interest rate hike following the Reserve Bank of Australia (RBA), markets are considering the prospect of concerted efforts by major central banks to contain inflation. bottom. The central bank unexpectedly raised its policy rate by 25 basis points to 4.75% at its June meeting, after holding it off since March. Bets on a Fed moratorium dropped to about 60% after the central bank’s hawkish surprise.
The May CPI, which will be released just before the FOMC meeting, is expected to slow to 0.2% m/m (4.2% y/y) due to the negative contribution of energy prices. We also expect core CPI to continue to decline to 0.3% m/m (5.2% y/y).
– Danske Bank
When will the Consumer Price Index be released and how could it affect EUR/USD?
CPI inflation data will be released on May 10 at 12:30 GMT. Especially if the monthly core inflation rate is lower than expected, market expectations that the Fed could return to tightening later this year after holding off on tightening could rebound. at the June meeting.
US nonfarm payrolls (NFP) and wage inflation figures released last week were mixed, with the market seeking more clues about the Fed’s rate outlook. The US economy added 339,000 jobs in May, compared with the forecast of 190,000 and an upward revision of 294,000 last time. Average hourly wages, which make up wage growth in the jobs report, slowed to 4.3%, while the unemployment rate rose to 3.7% last month, compared with expectations of 3.5%.
Softer-than-expected CPI inflation data bolstered Fed dovish hopes and provided a further stepping stone to the ongoing dollar correction. Therefore, the EUR/USD pair should climb higher again towards the 1.0800 level and above. Conversely, a surprisingly hot inflation data out of the US could save the USD bulls as it puts the Fed rate hike bets back on the table again. Regardless of the outcome, US CPI data could create intense volatility around the US dollar, ultimately impacting major currency pairs.
Meanwhile, Dwani Mehta, FXStreet’s Asia Session Lead Analyst, provided a brief technical outlook for the major, explaining: Meanwhile, the 14-day Relative Strength Index (RSI) is about to break through the midline from below, suggesting that the tide may turn against the euro bears. ”
Dwani also outlines the technical levels that are important for trading the EUR/USD pair. “On the upside, EUR/USD buyers need a sustained break above the 100DMA of 1.0806, which could test the May 22 high of 1.0831. Further up, the 1.0900 barrier. The door will open towards, or acceptance below the 21 DMA at 1.0752 will trigger a new downtrend towards the 1.0700 round number. It is considered to be 1.0667.
US Consumer Price Index (YoY)
Consumer price index released by the government U.S. Bureau of Labor Statistics It measures price volatility by comparing the retail prices of representative shopping carts for goods and services. Purchasing power of the US dollar is reduced by inflation. CPI is an important indicator for measuring changes in inflation and purchasing trends. Generally, high numbers are seen as positive (or bullish) for the US dollar and low numbers are seen as negative (or bearish). read more.
Next release: Tuesday, June 13, 2023 12:30:00 GMT
frequency: monthly
sauce: U.S. Bureau of Labor Statistics
Why is it important for traders?
The US Federal Reserve has a dual mandate to maintain price stability and maximize employment. These directives, which should have pushed inflation to around 2% year-on-year, have been the weakest pillars of central bank directives since the global pandemic hit, and their impact continues to this day. there is Price pressures continue to mount amid supply chain issues and bottlenecks, with the consumer price index (CPI) hovering at multi-decade highs. The Fed has already taken measures to curb inflation and is expected to remain aggressive for the time being.
