US CORE INFLATION AT 0.5% OR ABOVE TO TRIGGER A DOLLAR RALLY – ING

Today's market highlight will be the US Consumer Price Index (CPI) print for January. Economists at ING suspect that a consensus 0.4% month-on-month read in core inflation may be enough to weigh on risk assets and support the Dollar.

A consensus reading may be enough to support the Dollar

“The market's reaction will likely be driven once again by the MoM figure, which we expect to match consensus expectations at 0.5% for the headline rate and 0.4% for core inflation. This should translate into YoY reads of around 6.2% and 5.5%, respectively.

Such a consensus read may be enough to weigh on risk assets and support the USD, as it should allow markets to fully price in 50 bps of additional tightening by the Fed and offer the chance to scale back rate cut expectations (around 50 bps priced in for 2H23).” 

“Given that core inflation in December came in at 0.3%, a 0.2% print (or below) today should be enough to trigger a Dollar correction, and a 0.5% (or above) could trigger a Dollar rally.”