Today, one of the most important indicators that the Federal Reserve will consider when making its next interest rate decision will be released: January's Consumer Price Index (CPI).
According to Bloomberg estimates, the inflation report set for release at 8:30 a.m. (Easter Time) will show an overall inflation rate of 2.9 %, a significant slowdown from the 3.4% annual gain in December.
If these estimates come true, this will be the lowest annual inflation rate in about three years, and the first time since March 2021 that the rate will be below 3%.
Consumer prices are expected to rise 0.2% from the previous month, matching the recently revised December monthly increase.
According to data compiled by Bloomberg, on a "core" basis that excludes more volatile food and gas costs, prices will rise 3. 7% in January from a year ago. That's a slowdown from the 3.9% annualized increase seen in December.
Monthly core prices are expected to rise 0.3%, unchanged from the previous month.
According to Bank of America (BofA), core inflation remains especially stable due to high housing prices as well as "volatile" categories such as used cars, transportation services, and accommodation away from home.
Annual inflation remains above the Federal Reserve's 2% target. But the Fed's preferred inflation gauge, the core PCE price index, was below that target on a six-month basis, reinforcing hopes that the central bank may begin to cut interest rates.
According to CME Group, as of Monday afternoon (Eastern Time), markets were pricing in a nearly 85% chance that the Federal Reserve would keep interest rates unchanged in March.
The market largely expects the central bank to begin cutting rates at its May meeting, estimating the probability of a cut at around 60%.
Minneapolis FRB President Neel Kashkari added the Federal Reserve is "not done yet" when it comes to fighting inflation, while Boston FRB President Susan Collins said that they need to see more evidence that inflation is returning to the Fed's 2% target.
Against the backdrop of such statements, a decline in CPI below the forecast estimate of 2.9% will cause a sharp short-term strengthening of EURUSD.
The final recommendation is to buy EURUSD provided that the U.S. CPI (tracked change: year-on-year) is less than 2.9%.
A profit on EURUSD buying should be taken at the level of 1.0800. A loss on EURUSD buying should be fixed at the level of 1.0730.
This content is for informational purposes only and is not intended to be investing advice.
