Inflation information from the United States Consumer Price Index (CPI), which has a high impact for the month of January, will be released by the Bureau of Labor Statistics (BLS) on Tuesday at 13:30 GMT (21:30 WIB). The inflation data has the potential to shift market perceptions of Federal Reserve (Fed) policy, potentially triggering significant price fluctuations around the United States Dollar (USD).
 
What is expected in the upcoming CPI report?
 
Inflation in the United States (US) is expected to rise by 3% year-over-year in January, slightly lower than the 3.4% increase in December. Core CPI inflation, which excludes food and energy price fluctuations, is expected to decrease to 3.8% from 3.9% over the same period.
 
The monthly CPI and Core CPI are expected to increase by 0.2% and 0.3%, respectively.
 
On Friday, the BLS announced that they revised the December monthly CPI increase to 0.2% from 0.3%, while the Core CPI remained consistent with previous data. The CPI increase for November was revised up to 0.2% from 0.1%, while the October growth remained unchanged at 0.1%. The BLS noted that the CPI revisions reflect new seasonal adjustments.
 
In January, oil prices rose by more than 6% due to concerns related to the Red Sea crisis, while the Manheim Used Vehicle Index remained stagnant. Analysts at TD Securities stated, "Core inflation is expected to remain stable at 0.3% month-over-month, with the headline number likely slowing to 0.1%." The core CPI estimate is around 0.27% month-over-month, indicating a potential increase between 0.2% and 0.3%. The report highlights that used car prices are a major factor influencing inflation, while OER/rent is predicted to remain stable.
 
How does the US Consumer Price Index report affect EUR/USD?
 
After the impressive labor market data in January, the market outlook for Federal Reserve (Fed) policy shifted, ruling out a rate cut in March. According to the CME FedWatch Tool, the probability of the Fed keeping interest rates unchanged at the next meeting is over 80%.
 
A significant decline in the monthly Core CPI data would be necessary for the market to reconsider the possibility of a rate cut in March. In this situation, US Treasury yields could reverse direction, weighing on the US Dollar (USD). Conversely, stronger-than-expected data could have a positive impact on the USD in the short term compared to other currencies.
 
The market still doubts whether the Fed will cut rates in May. Between now and the policy announcement in May, there will be two sets of employment and inflation data. Therefore, investors may hold off on taking large positions based on the January inflation figures and wait for economic developments in the coming months.
 
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Warning!
 
The analysis of “US Consumer Price Index January Shocks, Euro Traders Prepare!” is based on fundamental and technical perspectives from reliable sources and does not constitute advice or solicitation. Always remember that this content aims to enrich readers' information. Always conduct independent research on other forex information before using it as a reference in your trading.
 
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