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US Dollar Gains Upside Momentum Ahead of US CPI Test

US Dollar Gains Upside Momentum Ahead of US CPI Test

Justin McQueen, Strategist

US CPI, US Dollar Analysis and News

  • USD to Extend Gains on Higher Than Expected CPI Print
  • US CPI Projected to Remain at 8.3%

The USD has regained its footing as we head into today’s CPI report with a helping hand from yesterday’s ECB decision. Overall, little in the way of surprises from the ECB having confirmed the normalisation path as priced in by money markets with a 25bps rate rise in July and a potential for a larger hike in September. However, the failure to surprise on the hawkish side given the high bar to do so, has ultimately taken the Euro lower, with the single currency testing 1.06.

The main event for today will be the latest US CPI report, where expectations are for the headline rate to remain at 8.3%. while the core figure is seen dipping 0.3ppts to 5.9%. The White House have already warned that the upcoming inflation report will be elevated, however, the question is whether that means inflation will be above or below expectations, which from a trader's point of view is the most important factor. As such, should we see inflation above expectations, that would likely propel the USD and US yields higher, while also weighing on risk sentiment.

CPI Data

  • CPI Expected 8.3% (Previous 8.3%), Range 8%-8.5%
  • Core CPI Expected 5.9% (Previous 6.2%), Range 5%-6.3%

The CPI and Forex: How CPI Data Affects Currency Prices

The table below shows the multi-asset reaction to US CPI in recent months. In light of the recent view that inflation and rates have peaked, should we see an inflation print that is either in line with expectations or above expectations, we can anticipate a similar reaction to last month.

Figure 1. Multi-Asset Response to US CPI

US Dollar Gains Upside Momentum Ahead of US CPI Test

Source: DailyFX, Refinitiv, Bloomberg

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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