Today, the US Consumer Price Index (CPI) and the Federal Open Market Committee (FOMC) monetary policy decisions will be released. This week has seen a trend of USD strength, and these events will be crucial in determining whether this trend continues.
The forecast for the May US CPI is an annual increase of 3.4% (unchanged from the previous 3.4%), with the core annual CPI expected at 3.5% (previously 3.6%). The market’s interpretation will be key: will it see this as persistent inflation, or as evidence that the inflationary trend is declining? The immediate reaction will likely depend on how the actual figures compare to expectations, but the overall market sentiment will also be influenced by the FOMC's stance.
The FOMC meeting will feature the member interest rate projections (dot plot) and a press conference with Chairman Powell. The consensus is that interest rates will remain unchanged, but the focus will be on the projected rate cuts for the remainder of the year. Previously, three rate cuts were anticipated; now, this might be revised to two or even one. The market is currently pricing in approximately 1.5 rate cuts. If the forecast shifts to just one rate cut, we can expect increased USD buying. However, this will depend on Powell’s comments during the press conference.
It is important to note that the recent USD strength has been driven by the decline in the EUR/USD pair, influenced more by political uncertainty in France and Germany than by US-specific factors. Political developments in Europe could thus shift market focus back to the Euro, potentially causing volatility in USD movements.
In addition to Powell’s press conference, other notable events include speeches and participation in events by ECB officials such as Croatian Central Bank Governor Boris Vujčić, ECB Vice President Luis de Guindos, German Bundesbank President Joachim Nagel, and Bank of France Governor François Villeroy de Galhau. The US 30-year bond auction ($22 billion) and weekly US oil inventory data are also scheduled.
Key Event to Watch:
US Consumer Price Index (CPI) - Pay attention to the results and be ready to adapt to the subsequent USD movements, regardless of direction.
