What is the CPI?
The Consumer Price Index (CPI), which measures inflation, is a crucial indicator of pricing pressures in an economy. Forex traders keep an eye on the CPI because the central bank may adjust its monetary policy as a result, which could enhance or weaken the value of the currency relative to other currencies.
It is anticipated that the US Consumer Price Index will climb by 3.6% YoY in August, up from the 3.2% increase seen in July. Inflation in the core CPI is predicted to drop significantly in August, to 4.3% YoY. The US CPI inflation report might have a big impact on the value of the US dollar before the September policy meeting of the Fed.
Since the middle of July, the US Dollar (USD) has been outperforming its competitors as new macroeconomic data emphasises the US economy’s solid performance and the tight labour market. Chairman of the Federal Reserve (Fed), Jerome Powell, emphasised that the Fed is prepared to raise the policy rate further if appropriate during his final public presentation at the Jackson Hole Symposium on August 25. Despite recent readings that have been more encouraging, Powell stated that inflation “remains too high” and that there is still a long way to go in bringing it down.
What do the Fed think?
Data on US CPI inflation may change how markets perceive the Fed’s rate forecast and have a substantial impact on how much the USD is worth. Investors will closely examine the report’s specifics to determine whether any strides have been made in taming the sticky aspects of inflation. The CME Group FedWatch Tool indicates that markets are pricing in a 40% possibility that the Fed will increase the policy rate by 25 basis points (bps) before the end of the year at the time of the event.