The much-anticipated US CPI Report for May will be released this Wednesday, and early projections suggest a notable increase in inflation in the United States. Economic analysts believe that the recent Tariff Policy by the US administration has placed upward pressure on commodity prices, which could become a turning point for the Federal Reserve in shaping its future Monetary Policy.
Rising Core CPI And USD Valuation Risks
While Core CPI stood at 2.8% on a yearly basis in April, expectations are for it to climb to 2.9% in May. Analysts argue that if the monthly Core CPI rises by 0.3% or more, it could lead to an immediate spike in USD value, as markets may interpret it as a reason for the Federal Reserve to delay any potential Rate Cuts.
Fed Policy And Tariff Effects: Intervention Or Patience?
The Federal Reserve recently maintained its interest rate between 4.25% and 4.50%. However, after the release of May’s Employment Data, where Nonfarm Payrolls rose by 139,000, the FedWatch Tool showed a decline in expectations for a Rate Cut from 30% to just 20%. In this environment, if Inflation accelerates, the Fed could adopt a more cautious stance.
Officials from the Federal Reserve have repeatedly indicated that unless there’s significant weakness in the US Labor Market, they would avoid easing interest rates. However, increasing Inflation and intensifying Tariff Effects are pressuring policymakers. In a recent statement, Fed Board Governor Adriana Kugler expressed concerns about rising inflation risks and potential slowdowns in economic output.
Meanwhile, Chicago Fed President Austan Goolsbee emphasized the need to observe whether the tariff impacts are temporary or structural before initiating any policy moves. This makes the coming months critical for the Federal Reserve’s strategic approach.
EURUSD: Risk Or Opportunity?
If the upcoming Core CPI data disappoints expectations, especially if it falls below 0.2%, the USD may weaken, creating a bullish setup for EURUSD. On the contrary, if the data beats estimates, EURUSD could face pressure. Experts note that current Technical Indicators still signal a bullish trend, but lack of momentum could weaken it.
Markets Focused On CPI Report And Volatility Ahead
All eyes are now on the release of the US CPI Report. Should Inflation hit or exceed the 2.5% mark, not only could the USD strengthen, but the Stock Market may also experience increased volatility. In such a scenario, investors are advised to reconsider their Forex and Equity Portfolios strategies ahead of potential turbulence.
