- The US Consumer Price Index is expected to rise by 2.9% YoY in December.
- Core CPI inflation is projected to remain steady at 3.3% from the previous month.
- The Federal Reserve is widely anticipated to maintain interest rates unchanged in January.
The US Consumer Price Index (CPI) report for December, a key measure of inflation, will be released on Wednesday at 13:30 GMT by the Bureau of Labor Statistics (BLS).
While the CPI data could strengthen the US Dollar's (USD) upward momentum, it’s unlikely to cause immediate shifts in the Federal Reserve’s (Fed) monetary policy plans, at least in the short term.
What to Expect in the CPI Report? US inflation, as measured by the CPI, is expected to increase by 2.9% YoY in December, slightly up from 2.7% in November. Core CPI, which excludes volatile food and energy prices, is projected to remain steady at 3.3% YoY.
On a monthly basis, forecasts suggest a 0.3% rise in headline CPI and a 0.2% increase in core CPI.
Analysts at TD Securities anticipate a slight decrease in core inflation after four consecutive months of firmer 0.3% MoM expansions. They expect deflation in goods to help offset a likely rebound in housing inflation. The headline CPI inflation is expected to edge up to 2.9%, while core inflation should remain unchanged at 3.3%.
According to the minutes from the Federal Open Market Committee (FOMC) meeting held on December 17-18, Fed officials expressed concerns about rising inflation risks and highlighted how potential changes in trade and immigration policies could complicate efforts to manage inflation. These factors could influence the US economic outlook significantly.
Impact on EUR/USD With the incoming Trump administration expected to adopt stricter immigration policies, relaxed fiscal policies, and reintroduce tariffs on imports from China and Europe, inflationary pressures are expected to rise. These factors, combined with a resilient labor market, are reshaping investor expectations. Markets are now forecasting that the Federal Reserve will cut rates by just 25 basis points this year, maintaining a stable outlook for the USD.
However, with the US labor market cooling slowly and inflation remaining persistently high, the December CPI report is unlikely to lead to significant changes in the Fed’s policy stance. Current data from CME Group’s FedWatch Tool shows a 97% probability that the Fed will keep rates unchanged at its January 29 meeting.
Regarding the EUR/USD, Pablo Piovano, Senior Analyst at Hubtrading, offers a technical outlook. He identifies the January 13 low of 1.0176 as the first key support level, followed by the psychological parity mark at 1.0000. If parity breaks, the pair could test the November 2022 low of 0.9730.
On the upside, resistance is seen at the January 6 high of 1.0436, followed by the provisional 55-day Simple Moving Average (SMA) at 1.0516, and the December peak of 1.0629. Piovano notes that the daily Relative Strength Index (RSI) has bounced off the oversold territory, though any recovery is expected to be modest and short-lived.
