US CPI: A HIGH NUMBER RISKS SUPPORTING THE DOLLAR INTO MAY

Today's US March Consumer Price Index (CPI) release will shed light on whether inflation has turned the corner or the Fed needs to tighten further.

US March CPI to set the tone

“Core US CPI has been one of the biggest FX movers over the last 12 months and today's March release is expected to show another sticky 0.4% MoM reading. Sticky inflation is probably the biggest risk to the consensus views in the FX market right now that EUR/USD and USD/JPY end the year at 1.12 and 125, respectively.” 

“Today sees the release of the 22 March FOMC minutes. Undoubtedly there will be a lot of noise in the minutes and it is unclear what they will mean for current market pricing of a final 25 bps hike in May (75% priced) and a subsequent 60 bps easing cycle by year-end.” 

“Expect DXY to be driven by any surprises on the March CPI today and the sharper reaction (risk negative, Dollar rally) would probably come on an upside surprise.”