US Consumer Price Index will be key

This all makes for a very important red calendar event this week in the US Consumer Price Index data. This will be released on Tuesday morning in the US session and traders will use the data to speculate how the Federal Reserve will react later this month when the central bank will meet to decide on its interest rate setting. 

´´The release of US CPI inflation data tomorrow is expected to show headline price pressures remains elevated at 6% YoY, well above the Fed’s 2% Inflation forecast,´´ analysts at Rabobank said. ´´If the Fed were to back away from its tightening cycle, it may have a credibility issue on its hands. Additionally, for some years Fed officials have argued that monetary policy is not the right tool to tackle financial stability,´´ the analysts noted.  

´´Given the announcement that the Fed has made over the weekend in conjunction with the Treasury to stop contagion risks from the SVB crisis, the FOMC may favor continuing to hike rates next week with a focus on the inflation risks,´´ the analysts at Rabobank argued.

´´We maintain our 1- and 3-month forecasts of EUR/USD 1.06 and 1.06 respectively, though clearly, we will be watching the forward guidance at this month’s Federal Reserve (and ECB) policy meetings closely,´´ the analysts explained.