Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 2.9% on a yearly basis in July from 3% in June, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading came in line with the market expectation.
The annual core CPI, which excludes volatile food and energy prices, rose 3.2%, following the 3.3% increase recorded in July and matching analysts’ estimate. On a monthly basis, the CPI and the core CPI both rose 0.2%.
Follow our live coverage of the US inflation data and market reaction.
Market reaction to US Consumer Price Index data
The US Dollar Index recovered from session lows with the immediate reaction to the US inflation report and was last seen trading flat on the day at 102.60.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.21% | 0.20% | 0.41% | 0.09% | 0.20% | 1.21% | -0.01% | |
| EUR | 0.21% | 0.40% | 0.58% | 0.28% | 0.46% | 1.40% | 0.20% | |
| GBP | -0.20% | -0.40% | 0.21% | -0.09% | 0.05% | 1.01% | -0.17% | |
| JPY | -0.41% | -0.58% | -0.21% | -0.26% | -0.13% | 0.82% | -0.33% | |
| CAD | -0.09% | -0.28% | 0.09% | 0.26% | 0.13% | 1.10% | -0.07% | |
| AUD | -0.20% | -0.46% | -0.05% | 0.13% | -0.13% | 0.94% | -0.24% | |
| NZD | -1.21% | -1.40% | -1.01% | -0.82% | -1.10% | -0.94% | -1.15% | |
| CHF | 0.01% | -0.20% | 0.17% | 0.33% | 0.07% | 0.24% | 1.15% |
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 July Consumer Price Index data at 03:00 GMT.
- The US Consumer Price Index is forecast to rise 2.9% YoY in July, at a softer pace than June’s 3% increase.
- Annual core CPI inflation is expected to soften to 3.2%.
- The inflation data could influence the probability of a 50 bps Fed rate cut in September.
The Bureau of Labor Statistics (BLS) will publish the highly anticipated Consumer Price Index (CPI) inflation data from the United States (US) for July 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 2.9% in July, down slightly from the 3% rise reported in June. The core CPI inflation, which excludes volatile food and energy prices, is seen ticking down to 3.2% from 3.3% in the same period.
Meanwhile, the US CPI is set to rise 0.2% MoM in July after declining by 0.1% in June. Finally, the monthly core CPI inflation is forecast to print 0.2%.
The disappointing jobs report from the US, which showed that Nonfarm Payrolls rose 114,000 in July, revived expectations for the Federal Reserve to cut the policy rate multiple times this year starting in September. Following the July 30-31 policy meeting, Fed Chairman Jerome Powell refrained from confirming a rate cut in September but noted that there was a “real discussion” about lowering the policy rate at that meeting. Additionally, Powell acknowledged that they are attentive to risks on both sides of the dual mandate.
According to the CME FedWatch Tool, markets are currently pricing in a nearly 50% probability of a 50 basis points (bps) rate cut in September.
Previewing the July inflation data, “while gaining some momentum, we expect core CPI prices to remain largely under control in July after registering an unexpected contraction in June,” said TD Securities analysts in a weekly report and added:
“Headline inflation likely strengthened m/m as well as energy prices are expected to rebound post sharp declines in May/Jun. Our unrounded core CPI forecast at 0.14% m/m suggests larger risks toward a rounded 0.2% increase.”
How could the US Consumer Price Index report affect EUR/USD?
The market anticipation of a 50 bps Fed rate cut in September will be put to test when July inflation data is released. In case the monthly core CPI, which is not distorted by base effects and the prices of volatile items, rises 0.3% or more, investors could lean towards a 25 bps rate reduction at the next Fed meeting. The market positioning suggests that such a reading could trigger a rebound in the US Treasury bond yields and help the US Dollar (USD) gather strength against its rivals with the immediate reaction.
If the monthly core CPI rises less than expected, market participants could remain hopeful about a 50 bps cut in September. In this scenario, the USD is likely to come under renewed selling pressure.
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 suggests that the bullish bias remains intact, with the Relative Strength Index (RSI) indicator on the daily chart holding comfortably above 50. Additionally, the pair staged a decisive rebound after testing the 20-day SMA last week, reflecting the sellers’ hesitancy to commit to an extended decline.”
“On the upside, 1.0950 (static level) aligns as interim resistance before 1.1000 (psychological level, static level). If EUR/USD manages to flip 1.1000 into support, it could target 1.1140 (December 28, 2023, high) next. Looking south, immediate support could be identified at 1.0880 (20-day SMA) ahead of 1.0830 (200-day SMA) and 1.0800 (100-day SMA).”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
