Breaking: The US annual CPI fell by 6% in February

 Breaking: The US annual CPI fell by 6% in February

 CPI Inflation Rate Still Hot

According to a study released on Tuesday by the US Bureau of Labor Statistics, consumer price index (CPI) inflation in the US dropped from 6.4% in January to 6% in February. This reading was consistent with what the market was anticipating. The CPI rose 0.4% every month, in line with analysts' expectations.

 

In contrast to the market expectation of 0.4% monthly growth, the Core CPI, which excludes volatile food and energy costs, increased by 0.5%, lowering the annual rate to 5.5% from 5.6%.

 

Market reaction

Data on inflation for February have a mixed initial impact on the US dollar. The US Dollar Index stood at 103.65 as of the time of writing, essentially unchanged for the day.

 

The latest CPI statistics appear to be causing market players some confusion as to how they may affect the Federal Reserve's policy stance. Before the opening bell on Wall Street, the benchmark 10-year US Treasury bond yield maintains a daily range of over 3.5%, and US stock index futures cling to moderate daily gains.

 

According to the CME Group FedWatch Tool, markets are now pricing in an 85% likelihood that the Federal Reserve will raise interest rates by 25 basis points at the next meeting, up from 56% earlier in the day.

 

On March 14 at 12:30 GMT, the US Bureau of Labor Statistics (BLS) will issue the Consumer Price Index (CPI) data for February. With the most recent mixed US labor market report and the US financial crisis, which have resurrected the dovish US Federal Reserve (Fed) predictions, the US Dollar (USD) has started to fall.

 

The US inflation report will be the last significant economic data to be released before the Federal Reserve policy meeting on March 22.

 

What should the upcoming CPI statistics release contain?

The Core CPI, which excludes volatile food and energy prices, is also anticipated to budge a touch lower to 5.5% from the 5.6% observed in January. The Consumer Price Index data is likely to decrease to 6.0% on an annualized basis.

 

The headline CPI data is projected to decline to 0.4% MoM in February from a 0.5% increase in January. In the reporting month, the Core CPI is anticipated to remain constant at 0.4% MoM.

 

As long as the Federal Reserve is committed to bringing inflation down to its objective of 2.0%, the US CPI statistics will be of the utmost importance. Additionally, since the Fed policymakers are in a "blackout period" before its meeting on March 22, the inflation data will have a significant market impact because it will be used by the Fed to determine its course for future policy.

 

According to Wells Fargo economists, the headline inflation rate will likely remain high this time around, in keeping with the general consensus: "We look for another monthly increase of 0.4% in the overall CPI in February, which would put the YoY rate at 6.0%. Although the process is going to be difficult and drawn out, inflation is nevertheless expected to gradually decline. Prices are still rising substantially above the Fed's 2% target despite modest directional improvement over the previous few quarters, and the tight labor market signals that there are still inflationary pressures present that could delay a complete return to 2% inflation.

 

When is the Consumer Price Index report due, and how can it impact the EUR/USD exchange rate?

 

On March 14, at 12:30 GMT, the Consumer Price Index data report is expected to be released. The renewed dovish Fed rate hike views could be strengthened by a weaker-than-expected number.

 

During his speech before the US Congress last week, Federal Reserve Chairman Jerome Powell backed the argument for larger rate increases should the incoming data call for quicker tightening. Yet, the US banking crisis and conflicting job figures cast doubt on the prospect of a larger Fed rate hike.

 

With a downward revision to its forecast, Goldman Sachs now predicts that the Federal Reserve will not raise interest rates at its meeting on March 22.

 

Rate reductions by the end of 2023 have now been factored into traders' predictions for the US interest rate trajectory as a result of the Silicon Valley Bank (SVB) collapse saga.

 

The US Dollar will experience a fresh leg lower in the event of a weak CPI print, allowing the EUR/USD pair to continue rising toward the 1.0800 level. On the other hand, a surprisingly hotter US CPI print might be the difference-maker for the Greenback bulls.

 

Regardless of deviation from the predicted readings, the US CPI data is likely to shake up the market and increase volatility, encouraging traders to seize short-term chances surrounding the EUR/USD pair.

 

"EUR/USD has moved south after failing to gain acceptance above the flattish 50-Daily Moving Average (DMA) at 1.0726 on the daily sticks," says Dhwani Mehta in his brief technical analysis of the major. The retracement may only be temporary, according to the Relative Strength Index (RSI), which is pointing lower while defending the midline.

 

Dhwani also identifies key technical support and resistance levels for the EUR/USD pair: "On the upside, recapturing the 50 DMA barrier is crucial to restarting the upswing. The monthly high of 1.0749 and the round number of 1.0800 are considered the next stops for bulls on the euro. Alternately, a decline in the EUR/USD pair might reveal the horizontal 21 DMA support at 1.0637, below which the path for EUR/USD sellers to the 1.0600 level could be straightforward.