Will US Consumer Price Index (CPI) report disrupt USD weakening trend? A significant upside surprise is needed to support the greenback, according to economists at MUFG Bank.
Fed expected to further step down the pace of hikes to 25 bps at the next meeting
“The report is expected to provide further confirmation that inflation pressures continue to ease with headline inflation expected to fall by -0.1% MoM and core inflation to increase at the softer pace recorded over the previous two months at around +0.3% MoM.”
“Ahead of the US CPI report, market participants are confident that the Fed will further step down the pace of hikes to 25 bps at the next FOMC meeting and for the terminal policy rate to remain below 5.00%. It would take a significant upside inflation surprise today to materially alter those expectations and prevent the USD from continuing to correct lower at the start of this year.”
“We suspect that a significant upside surprise today would provide more support for the US Dollar as it would make it harder for the market to continue looking through recent hawkish Fed rhetoric.”
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