Breaking: US CPI inflation declines to 2.5% in August vs. 2.6% expected


Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 2.5% on a yearly basis in August from 2.9% in July, the US Bureau of Labor Statistics (BLS) reported on Wednesday.

Follow our live coverage of the US inflation report and the market reaction.

The annual core CPI, which excludes volatile food and energy prices, rose 3.2% in the same period, matching July's increase and the market expectation. On a monthly basis, the CPI increased 0.2%, while the core CPI was up 0.3%.

Market reaction to US CPI data

The US Dollar Index erased its daily gains with the immediate reaction to these data and was last seen trading flat on the day at 101.62.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   0.51% 0.45% -0.11% 0.19% 0.23% 0.66% 0.42%
EUR -0.51%   -0.10% -0.55% -0.31% -0.33% 0.16% -0.11%
GBP -0.45% 0.10%   -0.58% -0.21% -0.22% 0.24% -0.01%
JPY 0.11% 0.55% 0.58%   0.29% 0.34% 0.74% 0.71%
CAD -0.19% 0.31% 0.21% -0.29%   0.07% 0.44% 0.39%
AUD -0.23% 0.33% 0.22% -0.34% -0.07%   0.46% 0.20%
NZD -0.66% -0.16% -0.24% -0.74% -0.44% -0.46%   -0.25%
CHF -0.42% 0.11% 0.01% -0.71% -0.39% -0.20% 0.25%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).


This section below was published as a preview of the US Consumer Price Index (CPI) data at 03:00 GMT.

  • The US Consumer Price Index is forecast to rise 2.6% YoY in August, at a softer pace than July’s 2.9% increase.
  • Annual core CPI inflation is expected to hold steady at 3.2%.
  • The inflation data could alter the odds of a 50 bps Fed rate cut in September and rock the US Dollar.

The Bureau of Labor Statistics (BLS) will publish the highly anticipated Consumer Price Index (CPI) inflation data from the United States (US) for August on Wednesday at 12:30 GMT.

The US Dollar (USD) braces for intense volatility, as any surprises from the US inflation report could significantly impact the market’s pricing of the Federal Reserve (Fed) interest rate cut expectations in September.

What to expect in the next CPI data report?

Inflation in the US, as measured by the CPI, is expected to increase at an annual rate of 2.6% in August, down from the 2.9% rise reported in July. The core CPI inflation, which excludes volatile food and energy prices, is seen to stay unchanged at 3.2% in the same period.

Meanwhile, the CPI and the core CPI are both forecast to rise 0.2% on a monthly basis, matching July’s increase.

Previewing the August inflation report, “we expect core CPI prices to remain largely under control in August, printing a fourth consecutive gain under 0.2% m/m. Services inflation will play a key role owing to cooling shelter prices,” said TD Securities analysts in a weekly report. “Headline inflation likely also stayed subdued with energy prices returning to deflation. Our unrounded core CPI forecast at 0.14% m/m suggests larger risks toward a rounded 0.2% increase.”

Following several soft inflation readings in a row, Federal Reserve policymakers made it clear that they will shift their focus to the labor market amid growing signs of a cooldown. “We have a little more tolerance for an upside surprise on CPI as the longer arc shows inflation coming down,” Chicago Fed President Austan Goolsbee said recently.

How could the US Consumer Price Index report affect EUR/USD?

The market anticipation of a 50 basis points Fed rate cut in September will be put to the test when September inflation data is released.

Following the mixed August jobs report, the probability of the Fed lowering the policy rate by 50 bps at the upcoming meeting declined below 30% from nearly 50% earlier in the month, according to the CME Group FedWatch Tool. The US Bureau of Labor Statistics announced on Friday that Nonfarm Payrolls rose 142,000 in August. This reading followed the 89,000 (revised from 114,000) increase recorded in July and fell short of the market forecast of 160,000. On a positive note, the Unemployment Rate edged lower to 4.2% from 4.3% in July and the annual wage inflation, as measured by the change in the Average Hourly Earnings, rose to 3.8% from 3.6%. 

The market positioning suggests that it will take a significant miss in the CPI data for investors to reconsider a large rate reduction next week. In case the monthly core CPI comes in at 0% or in negative territory, the immediate reaction could revive expectations for a 50 bps cut and trigger a US Dollar (USD) selloff. On the other hand, an increase of 0.3%, or stronger, could confirm a 25 bps cut and help the USD stay resilient against its rivals. However, the fact that such a rate decision is already strongly priced in shows that the USD doesn’t have a lot of room on the upside. 

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: “EUR/USD’s near-term technical picture highlights a lack of buyer interest. The pair stays well below the 20-day Simple Moving Average (SMA) and the Relative Strength Index stays near 50.”

“EUR/USD could face first support at 1.1000, where the Fibonacci 38.2% retracement of the two-month-long uptrend that started in late June is located. Below this level, the 50-day SMA and the Fibonacci 50% retracement form the next support area at 1.0950-1.0930. On the other side, in case the pair clears 1.1070-1.1080 (Fibonacci 23.6% retracement, 20-day SMA) resistance, it could target 1.1200 (end-point of the uptrend) and 1.1275 (July 18, 2023, high) next.”

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD resumes slide and approaches 1.0900

EUR/USD resumes slide and approaches 1.0900

EUR/USD failed to extend gains and is back under selling pressure in the American session. United States inflation and employment-related figures kept the Fed on the 25 bps rate cut path.
 

EUR/USD News
GBP/USD loses momentum and drops to 1.3050

GBP/USD loses momentum and drops to 1.3050

The British pound seems to be running out of steam on Thursday, prompting GBP/USD to face some selling pressueer and slip back to the 1.3050 area, down modestly for the day.

GBP/USD News
Gold grinds north above $2,620

Gold grinds north above $2,620

Gold price bounced sharply after nearing the $2,600 mark, now trading around the $2,620 level. The US Dollar saw a short-lived spike following the release of US data, which came opposite to the Fed needs.

Gold News
Bitcoin vulnerable despite surge in stablecoin market capitalization

Bitcoin vulnerable despite surge in stablecoin market capitalization

Bitcoin price closed below the $62,000 support on Wednesday, showing signs of weakness. CryptoQuant report shows how rising stablecoin market capitalization could be a positive sign for Bitcoin and other cryptocurrencies.

Read more
RBA widely expected to keep key interest rate unchanged amid persisting price pressures

RBA widely expected to keep key interest rate unchanged amid persisting price pressures

The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.

Read more
Five best Forex brokers in 2024

Five best Forex brokers in 2024

VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals. 

Read More

Forex MAJORS

Cryptocurrencies

Signatures