Event Guide: U.S. CPI Report (April 2023)

Collect the dollar dealers!

We got CPI readings in the US this week, so this could be your chance to spot big moves from the USD pairs.

Focus on the event:

Headline and core readings of the US CPI for April 2023

When will it be released:

May 10, 2023 (Wednesday), 12:30 PM GMT

Use our forex market hours tool to convert GMT to your local time zone.

Expectations:

US Core CPI MoM: 0.4% expected vs. 0.1% previously
US Core CPI Annually: 5.0% expected vs. 5.0% prior
US Core CPI MoM: 0.3% expected vs. 0.4% prior

Related data since the last data event/release:

• April ISM Services PMI The price index rose by 0.1 to 59.6, reflecting a faster pace of increase
• April ISM Manufacturing PMI The price index rose by 4 points from 49.2 in March to 53.2
• WTI Crude Oil Prices It rose to a high of $83.41 a barrel in mid-April

Previous issues and the impact of the risk environment on the US dollar

April 12, 2023

Event Results/Price Action:

The headline inflation rate slowed from 0.4% m/m in February to a slight rise of 0.1% in March, bringing the annual rate down from 6.0% to 5.0%. Core CPI accelerated from 0.4% m/m to 0.5% in March.

However, the US dollar slid lower against most of its peers during the release, as dollar traders have already started pricing in the possibility that the Fed will hint at a tight stop soon.

Risk Environment and Internal Market Behaviors:

Risk-based flows were in full swing early in the week, driving a broad move lower in yields and the US dollar ahead of the release of CPI and FOMC meeting minutes.

A downbeat CPI provided the backdrop for relatively peaceful minutes, as some policymakers spoke of expectations of a mild recession this year, as well as a tendency to pause on strolling due to banking sector jitters.

March 14, 2023

Event Results/Price Action:

The US CPI for February came in in line with expectations, rising 0.4% m/m, which translates to a headline annual reading of 6%. The core version of the report was slightly above expectations at 0.5% m/m vs consensus of 0.4%.

The US dollar barely reacted to the report, as it continued its sideways price action against its forex peers, while traders prepared for other high-profile releases such as retail sales data.

Risk Environment and Internal Market Behaviors:

Market volatility picked up early in the week, as traders were still reacting to the SVB shake-up and the government’s concerted efforts to contain the liquidity crunch.

And the prospect of the Fed easing its hawkishness due to banking sector risks kept the dollar’s gains limited.

Price action odds:

Possibilities of feeling risky:

Risky assets start this week on a strong note, which could lead to some downsides for the safe-haven US dollar if this type of sentiment continues to rise.

However, last Friday’s upbeat non-farm payrolls release may have been enough to keep the dollar bulls excited, especially since the Fed recently refrained from hinting at a pause anytime soon.

US dollar scenarios:

Possible base scenario:

Based on previous releases, dollar traders may reserve their large reactions to any major bullish or bearish surprises.

In particular, a strong upside surprise could keep the bulls optimistic that the Fed will push through more hawkish moves in the coming months, likely leading to a wave higher for the greenback and Treasury yields.

If this happens, the US dollar could enjoy another higher footing against the Japanese yen and other currencies with relatively dovish central banks.

Possible alternative scenario:

A dismal reading of the CPI could remind traders that the US economy is already grappling with the prospect of a recession, a banking sector crisis, and debt ceiling problems.

This may highlight the divergence of monetary policy biases, particularly against the likes of the European Central Bank and the Reserve Bank of New Zealand who have signaled their willingness to continue tightening in order to fend off persistent inflationary pressures.

In this case, look for opportunities to catch a long position on NZD/USD if risk appetite remains, or watch for an opportunity to buy EUR/USD if risk aversion flows return.