US CPI Overview

Wednesday's US economic docket highlights the release of the critical US consumer inflation figures for July, scheduled later during the early North American session at 12:30 GMT. The headline CPI is expected to decelerate to 0.5% during the reported month from the 0.9% increase recorded in June. The yearly rate is also anticipated to have edged lower to 5.3% in July from 5.4% previous, which was the biggest monthly gain since August 2008. Core inflation, which excludes food and energy prices, is projected to rise 4.3% in July from a year ago against the 4.5% jump in the previous month – the fastest pace of increase since September 1991.

How Could it Affect EUR/USD?

Friday's blockbuster US NFP report marked another step towards the Fed's goal of substantial further progress in the labour market recovery. A stronger inflation print – the second leg of the Fed's dual mandate – will reaffirm market expectations that the US central bank will begin scaling back its extraordinary monetary stimulus sooner rather than later. This should continue to act as a tailwind for the US dollar and pave the way for a further near-term depreciating move for the EUR/USD pair.

Conversely, a softer reading might force investors to push back the likely timing for policy tightening by the Fed. That said, worries about the potential economic fallout from the fast-spreading Delta variant of the coronavirus might continue to lend some support to the safe-haven greenback. This, in turn, suggests that the path of least resistance for the EUR/USD pair remains to the downside.

Key Notes

  •   US July CPI Preview: Inflation data unlikely to change Fed tapering expectations

  •   US CPI Preview: Forecasts from nine major banks, annual inflation to decline slightly in July

  •   EUR/USD Outlook: Bears await a sustained break below 1.1700 mark, US CPI eyed

About the US CPI

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).

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