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US Inflation Data Release and Its Impact on the Market


The highly-anticipated US Consumer Price Index (CPI) inflation data for September is set to be unveiled by the Bureau of Labor Statistics (BLS) at 12:30 GMT. This announcement comes as the US Dollar (USD) exhibited significant strength against its rivals throughout September and early October. An array of positive macroeconomic data releases and the surge in US Treasury bond yields drove the USD’s rally.

The Federal Reserve (Fed) recently announced their intention to increase the policy rate by 25 basis points by year-end. However, the CME Group FedWatch Tool indicates that markets still see a 70% chance of the rate remaining at 5.25% to 5.5% in 2023. Meanwhile, fears of a US government shutdown in late September triggered a sell-off in US Treasury bonds, boosting US yields.

The forthcoming US CPI inflation data holds the potential to significantly influence market sentiment regarding the Fed’s rate outlook. This is especially pertinent after the September jobs report unveiled a substantial increase of 336,000 in Nonfarm Payrolls. Over the weekend, Fed Governor Michelle Bowman stated that the US central bank is likely to further tighten monetary policy, keeping interest rates at a restrictive level for some time to guide inflation back to the 2% target.

What Anticipations Should We Hold for the Upcoming CPI Data Report?

On an annual basis, analysts anticipate a 3.6% increase in the US Consumer Price Index for September. This represents a slight softening compared to the 3.7% rise observed in August. They forecast a 4.1% rise in the Core CPI for the same period, a decrease from the 4.3% growth experienced in August.

Both the monthly CPI and Core CPI are projected to increase by 0.3%. In September, oil prices notably surged by 9% on a monthly basis. A substantial rise in the West Texas Intermediate barrel price primarily fueled this increase. In the first week of October, crude oil prices experienced a sharp decline. However, renewed tensions between Israel and Hamas have the potential to sustain elevated energy costs in the near term.However, it remains uncertain how geopolitical developments will impact the inflation outlook and the Fed’s monetary policy.

In previewing the US September inflation report, analysts at the Australia and New Zealand Banking Group (ANZ) noted that “the outsized payroll number raises the prospect the Fed may hike again, but it’s not a clincher. September Consumer Price Index data out this week should be more revealing.” They also added their expectation that core inflation will rise by 0.2% on a monthly basis, a development the Fed is likely to welcome.

In the ISM Manufacturing PMI survey, the Prices Paid Index, which represents the inflation component, saw a sharp decline from 48.4 in October to 43.8 in September. This significant drop underscores a rapid decrease in input prices within the sector . Meanwhile, the Prices Paid Index in the ISM Services PMI held steady at 58.9, indicating a lack of progress in curbing inflation within the services sector.

Read More: US Fed Chair Jerome Powell Addresses FOMC Outcome

When will the Consumer Price Index Report be Released and How Could it Affect EUR/USD?

The eagerly awaited Consumer Price Index (CPI) data for September will be released by the Bureau of Labor Statistics (BLS) at 12:30 GMT. Initially, the US Dollar Index, which measures the USD’s strength against six major currencies, rose due to safe-haven demand at the week’s start but later faced strong bearish pressure. This correction resulted from declining US T-bond yields and improved risk sentiment, reducing demand for the USD.

Market positioning suggests the USD could rise if inflation data exceeds expectations. Investors closely monitor the Core CPI as it’s less affected by base effects. A monthly core inflation reading of 0.5% or higher might revive expectations of a Fed rate hike, boosting the USD. Conversely, if the Core CPI aligns with or falls below the consensus of 0.3%, the USD may struggle against its peers. San Francisco Fed President Mary Daly noted no immediate need for policy tightening, potentially bolstering EUR/USD gains.

Eren Sengezer, European Session Lead Analyst at FXStreet, provided a technical outlook for EUR/USD. The Relative Strength Index (RSI) indicator on the daily chart recovered to 50, and EUR/USD achieved a daily close above the 20-day Simple Moving Average (SMA) for the first time in over a month, signaling the potential for bullish momentum. Sengezer also highlighted key technical levels to watch, including potential support and resistance levels for the currency pair.

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Please note that this article serves solely for informational purposes. Thus, must not construe as financial advice. We advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.


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