U.S. CPI Expected To Decline, But Fed Unlikely To Budge

Normally investors refer to NFP Friday as the most important day of the month for traders, but now CPI Tuesday seems to have taken first place.

Investors are eager to see whether the inflation rate has indeed slowed or even declined or if inflation is on the rise again. Both outcomes can create strong price movements for the US Dollar, gold, US indices, and even oil.

GBP/USD - Technical Analysis

GBP/USD has its third consecutive day of price increases, mainly triggered by the weakening Dollar. The asset has reached a previous resistance level, potentially forming a psychological point.

Technical indicators point to the price increase, but traders need to consider the Dollar’s longer-term trend, strength, and today’s Consumer Price Index figures.

GBP/USD price chart.

The Eurozone and UK are also closer to implementing a plan for energy rationing during the winter months. Investors are looking to see how this may affect the GBP and even the US Dollar, which may act as a safe haven asset. However, today the spotlight will remain on US inflation figures.

Inflation in the US is predicted to have slowed mainly due to the decline in gasoline prices. It is predicted that the monthly CPI figure will decline from 0.0% last month to -0.1%. Strong price volatility will likely be experienced if the confirmed figure comes in far from what is expected.

A -0.1% CPI would be the lowest figure since June 2020. Even with lower inflation figures, most economists believe that the Federal Reserve will continue with its plan to increase interest rates this month. However, the CPI figure will affect the Fed’s rate decision throughout the rest of the year.

Many traders have contemplated whether the Dollar has peaked after a substantial decline. However, HSBC’s Head of FX Research has advised that increasing interest rates from the Fed and slower global growth will see the Dollar rise again. Many economists share this view.

NASDAQ - Technical View

The NASDAQ has continued its upward price swing for a fourth consecutive day and is rising during this morning’s future markets. Currently, the price has formed a retracement and remains weaker than the decline seen in August. The asset is also likely to see a higher level of volatility from today’s CPI announcement.

NASDAQ price chart.

The asset has been supported by the increase in investor confidence considering the performance of the US economy compared to other global economies. Investors are also wondering whether the Fed will continue to increase interest rates even if inflation turns out to have slowed.

However, it should be noted that the Fed has advised that investors shouldn’t price the stock market wrongly and that the Fed will continue to increase rates to tackle inflation.

It should also be taken into consideration that the restrictive monetary policy has generally pressured the stock market. This is still a possibility, but, of course, derivative traders need to be following the price movement.