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The market is eagerly awaiting the release of US CPI
upcoming CPI release will support this view remains to be seen.
“The market is eagerly awaiting the release of US CPI”
The market is eagerly awaiting the release of tomorrow’s US CPI. Current expectations suggest that both the headline and core indices will continue to remain at high levels, similar to the previous release. Following last week’s FOMC, there is growing speculation about the Federal Reserve’s decision to pause its interest rate hikes and the possibility of interest rate cuts later in the year. Whether the upcoming CPI release will support this view remains to be seen.
As the psychological pressure on US consumers due to the pandemic gradually eases, there is a shift in demand from goods to services. The Federal Reserve has been closely monitoring the trend of service inflation. Some analysts have suggested that the super core service prices, excluding housing costs that the Federal Reserve is paying special attention to, may indicate a more stable trend. Last month’s figure was 0.4% month over month, but if it falls below that, the market may continue to expect interest rate cuts later this year.
However, for the Federal Reserve to begin softening its view on inflation, sustained improvement is necessary for the next few months. Some have also pointed out that to achieve the Federal Reserve’s target of broader inflation, labor market weakness may need to further deteriorate.
Looking at the currency market, the USDJPY has been cautious ahead of the release of the US CPI. Although it rose to around JPY 135.34 earlier in the day, it corrected to JPY 135.07 without reaching the overseas high of JPY 135.36. It has been hovering around JPY 135.20 in the afternoon. Just before London traders joined the market, there was some buying of USD and selling of JPY, pushing the pair above the recent high to JPY 135.40. Expectations for a June interest rate hike have increased, with the probability rising from around 8% to around 25% following last week’s FOMC, making USD buying slightly more dominant.
As for EURUSD, there was steady buying throughout the morning following a drop below 1.0950 during overseas trading, pushing it up to 1.0977 in the afternoon. However, just before London traders joined the market, there was some USD buying, causing the pair to move in the 1.0960. The EURJPY also rose to around the mid 148 yen level, supported by the upward trend of USDJPY.
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