Markets are tense as the US Consumer Price Index (CPI) data is due to be released today, June, with most analysts anticipating that the level of inflation will increase even more than in the previous months. CPI is expected to rise to 2.7 percent year-on-year compared to 2.4 percent in May and the monthly rise is also projected to increase to 0.3 percent, up slightly on the 0.1 percent increase in the previous month. The Core CPI that does not include food and energy prices is also expected to move up as it is projected to increase to 3.0 percent per annum against the previous 2.8 percent.
The recent surge in inflation is being mainly blamed on the carry-over of import tariffs that were put in place throughout the year 2018 and are currently causing consumer prices to rise in a number of areas. These inflationary pressures are starting to be passed onto consumers through household items to energy costs. The analysts are of the opinion that the better data may redefine the monetary policy path of the Federal Reserve which may postpone the interest rate cuts that were earlier anticipated as early as late July.
On expectations of the data, US dollar has exhibited some mild strength and treasury yields have edged up, particularly on the short end. Stocks are still waiting, traders are awaiting the impact of inflation which can take a toll on the earnings and valuations. EUR/USD and GBP/USD forex pairs are trading just below important support areas, and the volatility is likely to increase greatly once the data is out.
Recent global developments, such as a resurgence of geopolitical threats and threats of tariffs with the US and its trade partners is also shaping the mood of investors. These might further burden the consumer prices in the third quarter. With traders waiting to see what the inflation figures will reveal, risk management is the major theme, with a lot of traders changing their positions before the release.
A stronger-than-expected print of CPI might cause a storm of market responses, which would bolster the US dollar, raise the yields, and lower the chances of a rate cut shortly. Conversely, a more dovish interpretation can restore expectations of a monetary easing shortly. The Bureau of Labor Statistics has become the center of attention now, and the data is expected to define the market narrative throughout the summer.
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