US CPI print today will impact the FX markets

Daily Currency Update

The CPI for July, due on Thursday, is expected to show a slight acceleration from last year. On a month-to-month basis, consumer prices are seen increasing 0.2%, the same as in June. The July Consumer Price Index is expected to show more evidence of softening inflation, despite a rebound in the annual rate.

The annual inflation rate is seen advancing from 3% to 3.3%.

This report is expected to be the most significant economic release of the week. Additionally, the weekly Jobless Claims report will be published simultaneously. Furthermore, more inflation data will be available on Friday with the release of the Producer Price Index (PPI). The market consensus is for the CPI to have risen 0.2% in July, with the annual rate increasing from 3% in June (the lowest since March 2021) to 3.3%. This would mark the first increase in the annual rate since June 2022, when it peaked at 9.1%, the highest in 40 years. Equally important is the Core CPI, which is expected to increase by 0.2% on a monthly basis. The annual Core CPI rate is anticipated to remain at 4.8%.

Numbers above expectations will indicate that the recent deflationary trend is starting to face difficulties, and concerns about persistent inflation may resurface. Conversely, if the figures align with estimates, it could suggest that inflation pressures are normalizing. In both scenarios, inflation would remain below the 2022 peak but above the Federal Reserve's 2% target.