US CPI, US Dollar Analysis and News

• Firm Break of Parity in Euro Likely on Higher Than Expected US CPI Print
• US CPI Projected to Rise to 8.8%

All eyes are on today’s US CPI report and judging by the White House Press Secretary’s comments the Biden Administration is gearing up for another sizeable inflation print.

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As it stands, market consensus is looking for a reading of 8.8%, however, in light of recent comments made by the White House risks appear geared towards another upside surprise. Below is a comparison in comments made by the press secretary ahead of last month’s shock CPI reading.

June: White House Press Secretary expects inflation numbers to be "elevated" - US CPI 8.6% vs 8.3% expected

July: White House Press Secretary expects inflation data to be "highly elevated"- US CPI expected at 8.8%

However, the question is, does “highly elevated” mean 8.8% (higher than prior, but in-line) or say a 9-handle inflation print, because there would be a notable difference in the market's reaction. As a reminder, from a trader's point of view when comparing data, the most important factor is how it compares to market expectations. As such, would we see inflation above expectations, which would likely propel the USD and US yields higher, while also weighing on risk sentiment. Of note, the S&P 500 is still below its pre-CPI level at 4014.

The CPI and Forex: How CPI Data Affects Currency Prices

CPI Data

• CPI Expected 8.8% (Previous 8.6%), Range 8.5%-8.9%
• Core CPI Expected 5.7% (Previous 6.0%), Range 5.5%-6.0%

The table below shows the multi-asset reaction to US CPI in recent months.

Figure 1. Multi-Asset Response to US CPI

Source: Refinitiv, DailyFX, Bloomberg

Not Now Italy

The woes in the Euro Area continue to pile up and now we may see another catalyst to add pressure to the single currency as Italian politics begin to garner attention. Tomorrow, Prime Minister Draghi will face a key test at the Senate with a confidence vote over an aid package to support businesses and households hit by high energy prices. However, the 5 Star party (the second-largest party in parliament) threatened they could boycott the vote, to which Mario Draghi stated he would step down if the 5 Stay party leaves his coalition. Should this scenario be realised, markets will reprice election risks, prompting the Bund-BTP spread to widen, weighing on the FTSE MIB and the Euro.

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