How To Trade The US Inflation Data?

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After a collection of negative economic releases yesterday from the US, including the PPI, Retail Sales, Empire State Manufacturing Index, and Industrial Production, all eyes turn to more key figures today which are set to have a notable impact on the markets. This is mainly due to the fact that they represent some of the most significant economic releases for the Federal Reserve’s decision next week. Today, traders will be watching the US inflation figures, including the Consumer Price Index and the Core Consumer Price Index, both on MoM and YoY.

Why This Is Important

CPI and Core CPI measure the change in the price of goods and services for a given time. Consumer prices account for the majority of overall inflation. Higher inflation is positive for the currency because the central bank might need to raise interest rates and vice versa. However, the most important index today is the Core CPI YoY, which measures overall inflation excluding the most volatile goods, including Crude Oil. Therefore, this index represents the real inflation level.

Market Expectations

Indicator

Forecast

Previous

Core CPI MoM

0.2%

0.1%

Core CPI YoY

2.2%

2.2%

CPI MoM

0.1%

0.0%

CPI YoY

1.0%

0.8%

Scenarios

  • Higher inflation data would push the US Dollar higher across the board because the market will increase its expectations toward the Federal Reserve’s decision next week. In other words, traders and investors will be anticipating the Fed to increase rates again by 25bps next week. In return, USD may rally.
  • Stable Inflation data would lead to a tight range until the end of the session, as the markets will remain uncertain about whether the Fed will increase rates next week. Therefore, traders might step aside and wait for further evidence next week.
  • Lower Inflation would sharply push the US Dollar lower across the board, as the markets will be certain that the Fed will not raise rates next week. This is likely to push expectations for higher rates until next year. In return, traders will rush into safe haven assets and stocks again.

Strong USD

Since the beginning of the day, the US Dollar has been the strongest currency, followed by the Japanese Yen. The Swiss Franc and the British Pound, on the other hand, are the weakest for the day. This might change after the US economic releases, depending on the outcomes, but traders might consider these currencies in their trading today by buying the strongest against the weakest.

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Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.

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Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.

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