US consumer price index, US dollar analysis and news
- US CPI at 8.1%, core at 6.0%
- A lower-than-expected CPI print could fuel a recovery in risk appetite
While market participants await the US CPI report, markets appear to be progressing somewhat with a slightly less potential than expected with the US, while bonds and stocks rose. However, this increases the risk of disappointment if we see print online. The table below highlights recent market reactions to the CPI report, and if inflation is below expectations, I expect a similar response to last month.
What does this mean for the Federal Reserve?
It can be said that it does not change much in the sense that they will remain resilient in monetary tightening. However, the lower than expected number should reduce the possibility of a rise of 75 basis points (good news for stocks + bonds) which is the main question for the markets at the moment.
Cross assets reaction to US CPI data
Source: DailyFX, Bloomberg
CPI . data
- CPI expected 8.1% (prev 8.5%), range 7.9%-8.5%
- Core CPI expected 6.0% (prev. 6.5%), range 5.8%-6.6%
CPI and Forex: How CPI Data Affects Currency Prices
While the above table is shown Anything less than a big surprise to the upside, results in a drop in the value of the US dollar. With the bias seemingly shifting towards the hawkish peak, this is my premise Bullish Bond TradingI expect even a 0.1ppm bullish surprise to lead to a renewal of the US dollar.
Implied volatility in forex option marked in USD/JPY
Ahead of the CPI report, FX options indicate a good-volume movement in the USD/JPY, which will take a cue from the movement in the returns. The breakeven point for the Japanese yen is 79 pips (the meaning, US dollar / Japanese yen It is expected to move in either direction by 79in points). To learn more about implied volatility, click the link below.
Implied volatility: what it is and why traders should care
Source: DailyFX, Refinitiv