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The US Dollar (USD) is eagerly awaiting the release of the Consumer Price Index (CPI) data for April, scheduled for May 10 at 12:30 GMT. Published by the US Bureau of Labor Statistics (BLS), the CPI data is expected to provide insights into the inflationary pressures in the US economy. Following a strong April Nonfarm Payrolls report and the publication of the Federal Reserve’s (Fed) Loan Officer Survey, which indicated better-than-expected credit conditions, the USD has been attempting a tepid recovery.
Traders closely monitor CPI data for potential impact on Fed’s June meeting decisions and USD valuations. April’s US CPI projected to maintain 5.0% rise from March, while Core CPI expected to increase by 5.5%, slightly lower than previous month.
In terms of monthly changes, the headline Consumer Price Index is forecasted to accelerate with a 0.4% increase in April, compared to the 0.1% rise in March. The Core CPI is also expected to rise by 0.4%, matching the previous month’s growth rate.
The US banking sector stress and the recent sell-off in bank shares highlight the importance of the CPI data in shaping the Fed’s decisions.
A softer-than-expected CPI reading, particularly in core inflation, could lead to expectations of a rate cut by the Fed in the latter part of the year. Currently, the market is pricing in a 90% probability of a Federal Reserve pause in June, while a 33% chance of a rate cut as early as July is also being considered, according to the CME Group FedWatch Tool.
The CPI data outcome will impact the EUR/USD pair. Disappointing CPI results could lead to USD decline and a potential bullish momentum for EUR/USD, targeting 1.1100. Conversely, stronger US inflation data could support the ongoing recovery of the USD. Traders are preparing for market volatility based on CPI data, which could present short-term trading opportunities for EUR/USD.