US CPI Data: February Inflation Report To Significantly Impact Markets

The February Consumer Price Index (CPI) data release, published by the US Bureau of Labor Statistics (BLS), is scheduled for March 14 at 12:30 GMT. The US Dollar (USD) has entered a downward spiral following the latest mixed US labor market report and the US banking stress, reviving the dovish US Federal Reserve (Fed) expectations.

The United States (US) inflation report will be the last high-impact economic data published before the March 22 Federal Reserve policy meeting.

What To Expect In The Next CPI Data Report?

On an annualized basis, the Consumer Price Index data is forecast to decline to 6.0%. The Core CPI, which excludes volatile food and energy prices, is also expected to edge a tad lower to 5.5% from 5.6% registered in January.

Meanwhile, the headline CPI data is seen easing to 0.4% MoM in February, compared with a 0.5% increase reported in January. The Core CPI will likely hold steady at 0.4% MoM in the reported month.

The US CPI data will be relevant, as the Federal Reserve remains committed to returning inflation to its 2.0% target. Further, it’s a ‘blackout period’ for the Fed policymakers ahead of the March 22 meeting. Therefore, the inflation data will have a strong market impact, as it helps the Fed determine the future policy path. 

Economists from Wells Fargo agree with the consensus and expect headline inflation numbers to remain high this time: “We look for another monthly increase of 0.4% in the overall CPI in February, which would put the YoY rate at 6.0%.

We still see inflation set to grind lower, but the process will likely be bumpy and take time. Despite some directional improvement over the past few quarters, prices are still growing well above the Fed’s 2% target. The tight labor market suggests that inflationary pressures could still forestall a total return to 2% inflation.”

When Will The Consumer Price Index Report Be, And How Could It Affect EUR/USD?

The Consumer Price Index data report is scheduled for release at 12:30 GMT on March 14. A softer-than-expected reading could strengthen the renewed dovish Fed rate hike expectations.

During his testimony in the US Congress last week, Federal Reserve Chief Jerome Powell endorsed a case for bigger rate hikes should the incoming data warrant faster tightening. However, the US banking rout combined with mixed employment data old cold water on a bigger Fed rate hike outlook.

Goldman Sachs revised its Fed rate hike outlook, stating that the Federal Reserve will not deliver any rate hike at its March 22 meeting. Meanwhile, JP Morgan called for a 25 bps March Fed rate increase.

The Silicon Valley Bank (SVB) collapse saga prompted traders to reassess their bets for the US interest rate trajectory, with rate cuts by the end of 2023 now priced in. In case of a disappointing CPI print, the US Dollar will see a fresh leg lower, allowing the EUR/USD pair to extend its uptrend toward the 1.0800 level. Conversely, a surprisingly hotter US CPI print could save the day for the Greenback bulls.

The US CPI data will likely stir the market and ramp up volatility, irrespective of divergence from the expected readings, prompting traders to grab short-term opportunities around the EUR/USD pair.

Dhwani Mehta offers a brief technical outlook for the major and explains: “EUR/USD has turned south after failing to find acceptance above the flattish 50-Daily Moving Average (DMA) at 1.0726 on the daily sticks. The Relative Strength Index (RSI) points lower while defending the midline, suggesting that the retracement could be shortlived.”

Dhwani also outlines critical technical levels to trade the EUR/USD pair: “On the upside, recapturing the 50 DMA barrier is critical to resuming the uptrend. The next stops for Euro bulls are at the monthly top of 1.0749 and the 1.0800 round figure. Alternatively, further retreat in the EUR/USD pair could expose the horizontal 21 DMA support at 1.0637, below which the road toward the 1.0600 mark could be smooth for EUR/USD sellers.”