Whattup, forex geeks! If you’ve peeked at your forex calendars, then you’ll know that the U.S. is set to print its CPI data on July 11 at 1:30 pm GMT.
Think you’re ready to trade the event? Here are points you need to know first:
What’s a CPI report?
The consumer price index report reflects the monthly change in the prices of goods and services purchased by consumers. The U.S. also publishes a “core” version, which removes volatile items such as food and energy prices.
Traders look at CPI because stabilizing prices is one of the Fed’s main #CentralBankGoals. That means it can change its policies if there are any significant trends that might affect economic growth.
What happened last time?
- Headline CPI (m/m): 0.1% as expected vs. 0.3% previous
- Core CPI (m/m): 0.1% vs. 0.2% expected, 0.1% previous
- Headline CPI (y/y): 1.8% vs. 1.9% expected, 2.0% previous
- Core CPI (y/y): 2.0% vs. 2.1% expected and previous
Consumer prices had risen by 0.1% in May, lower than April’s 0.3% uptick but in line with what many had expected. Turned out, the increase in food costs was offset by lower gasoline prices.
The core component maintained its 0.1% uptick for a fourth month in a row, as lower motor vehicle insurance and used cars prices held prices back.
Meanwhile, prices had grown by 1.8% from a year ago. That’s lower than the expected 1.9% uptick and the 2.0% five-month high figure in April!
The not-so-stellar numbers increased pressure on the Fed to start cutting rates this year. Not surprisingly, the dollar tanked across the board before other catalysts dragged it back up to its weekly highs.
What are traders expecting this time?
- Headline CPI (m/m): 0.0% vs. 0.1% previous
- Core CPI (m/m): 0.2% vs. 0.1% previous
- Headline CPI (y/y): 1.6% vs. 1.8% previous
- Core CPI (y/y): steady at 2.0%
Leading indicators aren’t as pessimistic.
ISM’s manufacturing PMI is on board with the slower inflation story since it noted that “prices contracted for the first time since February” with 10 out of 18 industries reporting price decreases.
ISM’s non-manufacturing PMI, on the other hand, reported prices increasing for a 25th month in a row despite uncertainties over “trade and tariffs.”
Ditto for Markit’s non-manufacturing PMI, which reflected prices rising “at the fastest rate for three months” as higher wage and fuel costs translated to higher pass through charges to clients.
How might the dollar react?
What you need to remember is that this week’s CPI release could either support or weaken expectations that the Fed will need a rate cut stat.
Remember that traders are already pricing in a whopping 100% chance that Chairman Powell and his gang will pull the trigger in July. Heck, some are even expecting a second one before December!
A much weaker-than-expected CPI report would energize dollar bears as it adds pressure to the Fed to start a rate cut cycle.
On the other hand, upside surprises in consumer price trends could give the Fed some breathing room before they take any action.
But wait! Before you place bets on the event, you should know that the Fed’s June meeting minutes AND day 1 of Powell’s closely watched testimonies would have already passed by the time the CPI is printed.
Unless both events turn out to be a dud (unlikely), then this week’s CPI report will more likely be used to extend or retrace the dollar’s existing trends than make its own splash.