US CPI – Forex News Trading

US CPI data will be released later today (1:30pm BST). Watch my weekly Forex news event’s overview here or read my full analysis in order to learn how to interpret these particular data points.

Total M/M Y/Y
Prior: 0.1% 0.2%
Expected: 0% 0.2%
Low: -0.2% 0.1%
High: 0.2% 0.4%

Prior: 0.1% 1.8%
Expected: 0.1% 1.9%
Low: 0% 1.8%
High: 0.2% 2.0%

US CPI measures the change in the price of goods and services purchased by consumers. US CPI is the most important inflation-related release due to its earliness and broad scope. This US CPI release is seasonally adjusted. Consumer prices account for a majority of overall inflation and inflation is important to currency valuation because rising prices lead the central bank to raise interest rates to contain inflation.

This is one of the biggest numerical data points of the month. The market is using all the US data to forecast the Fed’s first rate hike, with inflation measures being the most vital. Given that this release comes only one day prior to the Fed rate decision, where they may raise rates for the first time in a decade, any deviation on this release will have a large impact on the probabilities of a rate hike; the Fed will be watching this release closely, especially since y/y core PCE dropped to 1.2% in July.

The two most important factors the Fed are monitoring are employment and inflation, where the latter has been the weakest link. If y/y core inflation hits 2% then the Fed will feel much more comfortable about raising rates on the 17th.

Expected Market Reaction:
The market will mainly be focussed on the US CPI core reading. Any deviation will feed into chances of a rate hike the following day. A positive deviation may see USD strengthen into the event while a negative deviation may see USD sell off. The degree of volatility will be related to the degree of deviation. There is also the chance of a muted reaction from in-line figures, as the market awaits the major rate decision event.

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Source:: US CPI – Forex News Trading

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