The highly anticipated US Consumer Price Index (CPI) data for March, scheduled for release by the Bureau of Labor Statistics (BLS) on Wednesday at 12:30 GMT, is poised to have a significant impact on market sentiment, particularly surrounding the timing of the Federal Reserve (Fed) policy pivot. Investors are increasingly uncertain about the possibility of an interest-rate cut in June, and any surprise in inflation figures is expected to amplify volatility around the US Dollar (USD).
Forecasts suggest that inflation in the United States is set to rise at an annual pace of 3.4% in March, outpacing the 3.2% increase recorded in February. However, the core CPI inflation rate, which excludes volatile food and energy prices, is projected to slightly decrease to 3.7% from 3.8% in the same period. Both the monthly CPI and the core CPI are anticipated to increase by 0.3% in March.
Federal Reserve Chairman Jerome Powell, while speaking at an event organized by the Stanford Graduate School of Business, indicated that the policy rate may have reached its peak in this cycle. Powell emphasized that the Fed is not in a hurry to reduce rates and stressed the importance of letting incoming data guide policy decisions. However, he acknowledged uncertainty regarding recent inflation readings, cautioning that it is too soon to determine if they represent more than just a temporary uptick.
Looking ahead to the March inflation report, analysts from TD Securities anticipate a potential slowdown in core inflation to a ‘soft’ 0.3% monthly pace. Factors such as fluctuations in used vehicle prices and possible increases in Owners’ Equivalent Rent (OER) inflation may influence the outcome, with risks tilted towards a dovish surprise.
Market participants are closely monitoring the potential impact of the CPI report on EUR/USD dynamics. Recent readings have revived concerns over a slowdown in disinflationary progress, prompting investors to delay forecasts of a rate cut until June. However, strong labor market data in March, evidenced by Nonfarm Payrolls exceeding expectations, has tempered expectations of imminent rate cuts.
The uncertain outlook for EUR/USD is reflected in technical analysis, with the Relative Strength Index (RSI) indicator on the daily chart signaling indecisiveness. The pair’s direction hinges on breaking out of the 1.0830-1.0870 range, where key Simple Moving Averages (SMA) are located. A breach above 1.0870 could target 1.0960, while failure to hold support at 1.0830 may lead to further downside towards 1.0700.
Overall, the inflation data release is poised to drive short-term volatility in the currency markets, with the outcome likely to influence investor sentiment regarding Fed policy and subsequent movements in EUR/USD.
