EURUSD Retains Bull Trend as Dollar Risks More Losses on Slowing CPI

U.S. Consumer Price Index to Slow for First Time in Four-Months

- Core Inflation to Hold Steady at Annualized 1.6%

Trading the News: U.S. Consumer Price Index

A slowdown in the headline reading for U.S. inflation may prompt further declines in the dollar as it dampens the interest rate outlook for the world’s largest economy..

 

 

Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) is widely expected to discuss another $10B taper in March, the central bank remains poised to introduce a ‘qualitative approach’ for monetary policy, and a dovish twist to the forward-guidance may heighten the bearish sentiment surrounding the reserve currency as Fed Chair Janet Yellen remains reluctant to halt the zero-interest rate policy (ZIRP).

 

 

 

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Producer Price Index (YoY) (FEB)	1.2%	0.9%
Consumer Credit (JAN)	$14.000B	$13.698B
Consumer Confidence (FEB)	80.0	78.1

Slowing input costs paired with the downturn in consumer confidence may prompt businesses to engage in discounting, and a dismal CPI print may trigger a bearish reaction in the USD as it raises the threat for disinflation.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Advance Retail Sales (MoM) (FEB)	0.2%	0.3%
Average Hourly Earnings (YoY) (FEB)	2.0%	2.2%
Personal Income (JAN)	0.2%	0.3%

However, U.S. firms may raise consumer prices amid the pickup in wage growth along with the resilience in private sector spending, and a stronger-than-expected inflation print may generate a near-term bounce in the greenback as it puts increased pressure on the Fed to normalize monetary policy sooner rather than later.