The recent moderation in energy and food prices has raised expectations of a slowdown in today's CPI print, with -0.1% month-over-month anticipated. As a result, the annualised number's forecast is 8.1%, lower than last month's 8.5%. However, core CPI strips out volatile items and is expected to hold steady at 0.3% month-over-month and increase to 6.1% annually, higher than last's months 5.9%.
A concern on the core side is that some of the basket items exhibit a sticky element in their inflation characteristics. For example, shelter costs are rising rapidly. The market puts the probability at 88% that the Fed will deliver 75bps on 21 September. Nevertheless, it will celebrate any downside surprise in the core release.
Whilst the greenback has pulled back over the last two weekly candlesticks (green square), it has a high correlation coefficient to real rates, at 77%. As such, we are interested in the real rate's reaction to any news release that may impact expected Fed monetary policy, such as today's CPI number.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.