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Week Ahead: April CPI expected to not reach target

May 13, 2024

As we edge closer to the CPI release on May 15, 2024, market participants are aware of the potential for this data to influence the Federal Reserve’s upcoming interest rate policies. This is especially crucial as it marks one of the key economic updates before the FOMC gathers on June 12.

CPI release timing

Scheduled for 8:30 a.m. ET on May 15, this update is expected to play a role in shaping the Fed’s interest rate strategies. With inflation forecasts showing a month-on-month increase of 0.4% in the headline figure and a 0.3% rise in core inflation, the data could provide key insights into economic health.

With monthly projections suggesting a steady rise and annual inflation estimates at 3.3% to 3.4%, it’s quite clear that inflation remains above the Fed’s preferred target of 2%. This enduring upward trend might prompt a cautious stance from the Fed regarding any immediate interest rate reductions.

Shelter costs influencing CPI

Shelter costs, significantly influencing the overall CPI, have continued their upward trajectory. This segment of the market shows little to no sign of aligning with the Fed’s targets – which may indicate persistent inflationary pressures in key living expenses.

What to expect from April CPI

The outcome of the CPI report could either strengthen or weaken the USD. A higher-than-expected inflation rate might lead to postponing anticipated rate cuts, potentially boosting the USD as investors seek higher returns in U.S. assets. On the flip side, a lower inflation figure could soften the USD, as it might accelerate the timeline for rate cuts.

Currency pairs such as EUR/USD, USD/JPY, and GBP/USD are likely to see notable fluctuations. A robust USD following the CPI release could depress the EUR/USD, whereas the USD/JPY might climb.

Given the high but possibly stabilising inflation rates, coupled with the Fed’s renewed emphasis on employment metrics, it’s prudent for traders to prepare for a range of outcomes. We believe that monitoring both inflation figures and employment data will be crucial for predicting the Fed’s future monetary policy moves.

Historical patterns, such as those seen in 2018 and 2020, suggest that unexpected shifts in inflation can lead to significant market volatility and should be a key consideration in any trading strategy.

Forthcoming CPI data will act as a determinant for the USD’s trajectory as we approach the FOMC meeting in mid-June.