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The US Bureau of Labor Statistics (BLS) reported that the US Consumer Price Index (CPI) remained steady at 3.7% on a yearly basis in September, matching the August figure. This figure slightly exceeded the market’s expectation of 3.6%.
Core CPI Rises to Meet Analysts’ Expectations
In September, the annual Core CPI, which excludes volatile food and energy prices, rose to 4.1%, aligning with analysts’ estimates. On a monthly basis, both the CPI and Core CPI increased by 0.4% and 0.3%, respectively. The main contributor to this monthly increase was the index for shelter, responsible for over half of the rise.
Market Reaction and the US Dollar’s Strength
The immediate market reaction saw the US Dollar gaining strength against major rivals, with the US Dollar Index rising by 0.3% on the day to 106.05.
Market analysts note that without a surprise in core prices, markets reacted to the slight headline surprise by raising rate hike expectations via higher yields. However, Fed officials have indicated that higher returns on Treasuries may negate the need for further hikes, which could be reiterated in their speeches following this data release, potentially reversing current market movements.
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Expectations for the Next CPI Data Report
The upcoming US Consumer Price Index (CPI) inflation data for September, to be published at 12:30 GMT, is highly anticipated. This data could significantly affect the US Dollar’s valuation by altering the market’s pricing of the Fed’s rate outlook.
The Ongoing US Treasury Bond Yields Surge
The US Dollar strengthened in September and early October due to upbeat macroeconomic data and surging US Treasury bond yields. While the Federal Reserve’s recent statements hinted at a potential rate increase, the markets still indicate a likelihood of the policy rate remaining unchanged at the range of 5.25%-5.5% in 2023.
Influencing the Fed’s Rate Outlook
The CPI inflation data could influence the market’s positioning regarding the Fed’s rate outlook, especially after an impressive increase in Nonfarm Payrolls in September. Fed Governor Michelle Bowman also suggested the need for further monetary policy tightening to return inflation to the 2% target.
Potential Effects on EUR/USD
Investors eagerly await the CPI data’s release, as it could impact EUR/USD. A stronger-than-anticipated CPI data may boost the US Dollar further, while weaker data may hinder its resilience against other currencies. Analysts believe this data could play a crucial role in shaping the EUR/USD exchange rate.
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Disclaimer: Please note that this article serves solely for informational purposes. As such, it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
