According to Bloomberg Economics, a monthly US government report on consumer prices due today is set to show slower progress toward the Federal Reserve’s 2% inflation target, keeping the central bank biased toward more tightening.
The figures are set to show the consumer price index excluding food and energy rose 0.3% in October, leaving the year-over-year rate unchanged at 4.1%.
After encouraging progress this summer, disinflation in year-over-year core CPI likely stalled, while the monthly pace has been creeping up toward something more consistent with an annualized inflation pace of 3-4%.
The Fed will probably maintain a "wait-and-see" approach.
Officials most likely will leave open the possibility of future rate hikes as long as core CPI is running at the current monthly pace.
Inflation has been receding this year after peaking in 2022 at the highest levels since the early 1980s. Better-than-expected data on consumer prices over the last several months helped build consensus for a pause in the Fed’s tightening campaign at each of the central bank’s last two meetings.
Slower progress toward the 2% inflation target will raise concerns that more interest-rate increases may be needed, even with the central bank’s benchmark rate at a 22-year high.
According to futures markets, investors currently put the chances of another rate hike at either of the next two policy meetings at roughly 25%.
While disinflation in core CPI has pretty much stalled, the Fed is unlikely to change its “wait-and-see” attitude toward rate hikes, especially with the next few months likely to provide additional evidence that the labor market is cooling more rapidly.
Given this scenario, if the core CPI released today comes in above 0.3% it will push GBPUSD down.
The final recommendation is to sell GBPUSD, provided that the inflation report shows that the core CPI value exceeds the forecasted value.
Profit or loss can be fixed in an hour after the report is published.
This content is for informational purposes only and is not intended to be investing advice.
