US CPI inflation report for July was released at 1:30 pm BST and was a key macro event of the day. This is the second of four key releases Fed will look at while making September rate decisions (two remaining are jobs data for August and CPI report for August).
Market expected a pick-up in headline CPI from 3.0 YoY in June to 3.3% YoY in July with a 0.2% MoM increase. When it comes to core gauge, expectations were less clear – economists in the Bloomberg survey expected a drop from 4.8 to 4.7% YoY while economists in the Reuters survey saw core CPI staying unchanged at 4.8% YoY.
Actual report matched expectations in Bloomberg poll – core CPI slowed from 4.8 to 4.7% YoY. A dovish surprise was offered in headline data with annual CPI accelerating less-than-expected, to 3.2% YoY. A drop in core CPI is welcome and may give Fed more comfort to keep rates unchanged and assess the situation.
Source: Bloomberg Finance LP, XTB Research
Having said that, dovish reaction on the markets with USD dropping and equities gaining should not come as a surprise. Nevertheless, it should be noted that jobs and inflation data for July would also need to come in dovish to ensure Fed keeping rates unchanged at September meeting.
US, CPI inflation for July
- Headline (annual): 3.2% YoY vs 3.3% YoY expected (3.0% YoY previously)
- Headline (monthly): 0.2% MoM vs 0.2% MoM expected (0.2% MoM previously)
- Core (annual): 4.7% YoY vs 4.8% YoY expected (4.8% YoY previously)
- Core (monthly): 0.2% MoM vs 0.2% MoM expected (0.2% MoM previously)
EUR/USD jumped following lower-than-expected US CPI reading for July. The main currency pair broke above the 1.1040 resistance zone in a knee-jerk move.
EURUSD at H1 interval. Source: xStation5
However, part of the gains was erased already and now bulls are trying to keep the pair above the aforementioned resistance.