The US Consumer Price Index is set to rise 2.7% YoY in June, accelerating from May’s 2.4% growth.
US President Donald Trump continues to threaten tariffs and undermine the Fed’s independence.
June’s inflation data will significantly impact the direction of the US Dollar as it is a key indicator for the Fed’s interest-rate path ahead.
The United States (US) Bureau of Labor Statistics (BLS) will publish the all-important Consumer Price Index (CPI) data for June on Tuesday at 12:30 GMT.
Markets will look for fresh signs of US President Donald Trump's tariffs feeding through into prices. Therefore, the US Dollar (USD) could experience volatility on the CPI release as the data has a significant influence on the Federal Reserve’s (Fed) interest rate outlook for this year.
What to expect in the next CPI data report?
As measured by the change in the CPI, inflation in the US is expected to rise at an annual rate of 2.7% in June, having recorded a 2.4% increase in May. The core CPI inflation, which excludes the volatile food and energy categories, is forecast to rise 3% year-over-year (YoY), compared to the 2.8% acceleration reported in the previous month. Overall, inflation is expected to tick up further away from the Fed’s 2% target
Over the month, both the CPI and the core CPI are seen advancing by 0.3% in the same period.
Previewing the report, analysts at TD Securities said: “June core CPI likely rebounded to 0.27% month-over-month (MoM) following last month's surprising decline to 0.13%. We look for goods prices to gather steam in June, reflecting some tariff passthrough, and rebounding from last month's modest contraction.”
“Unlike May, we don't expect the services segment to help offset that strength. Headline also likely increased 0.27%, aided by energy prices,” they added.
How could the US Consumer Price Index report affect EUR/USD?
Heading into the US inflation showdown on Tuesday, markets digest a slew of fresh tariff threats by President Trump so far this month.
Over the weekend, Trump threatened a 30% tariff on imports from the European Union (EU) and Mexico, starting on August 1, having sent tariff letters to about 20 other countries last week.
Meanwhile, Trump is piling up political pressure for more aggressive stimulus from the US central bank, undermining its independence. The President continued to bash Fed Chair Jerome Powell by saying on Sunday that “it would be a great thing if Powell stepped down.”
White House economic adviser Kevin Hassett over the weekend warned Trump might have grounds to fire Powell because of renovation cost overruns at the Fed's Washington headquarters.
Against this backdrop, markets continue pricing in just over 50 basis points (bps) of interest rate reductions this year, with Powell sticking to his patient outlook on cuts.
The odds of a September Fed rate cut currently stand at about 60%, according to the CME Group’s FedWatch Tool, down from 65% seen at the start of the month.
The increased expectations of an extended pause by the Fed are mainly due to the latest tariff salvo from Trump and a resilient US labor market.
The June US employment data showed that the headline Nonfarm Payrolls (NFP) rose by 147,000, against expectations of a 110,000 job gain. Meanwhile, the Unemployment Rate ticked lower to 4.1% last month versus 4.2% in May.
Therefore, the inflation report for June is critical to gauging the market pricing of the Fed’s rate outlook, in turn, impacting the USD’s valuation in the near term.
An upside surprise in the monthly core CPI reading, which is not distorted by base effects, could provide additional leg to the USD recovery and weigh on EUR/USD. In such a case, the data could revive expectations of only one Fed rate cut this year.
However, a softer-than-expected monthly core inflation could ease concerns over the tariff effect on inflation, undermining the USD demand. In this scenario, EUR/USD could regain bullish traction.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains:
“The pair battles the 21-day Simple Moving Average (SMA) support at 1.1665. Meanwhile, the 14-day Relative Strength Index (RSI) indicator holds well above 50, despite the recent downtrend, suggesting that the bullish potential remains intact.”
“On the upside, the immediate resistance level is aligned at the 1.1750 psychological mark, above which the 1.1800 round level will be tested. Further north, the multi-year high of 1.1830 will come into play. Alternatively, a sustained move below the 21-day SMA could challenge the first support at the June 12 high of 1.1631. The next healthy support levels are seen at around 1.1550 and the 50-day SMA at 1.1474.”
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