US Dollar Yields Higher
The US dollar has exerted so much pressure on other pairs in the market this week. This is all the more so as uncertainty regarding the outcome of the Consumer Price Index CPI to be released today; has kept investors from making major decisions on other pairs. The dollar index has shown massive gains this week, with a significant 1.2% increase, bringing the price to 103.5 during the Asian session today. This is undoubtedly the biggest gain for the dollar in the past two months.
Analysts believe this might only be the beginning of a new phase of dollar dominance should the CPI report be released during the New York session today. A fall below the target will force the Fed to take a more hawkish stance next week during the Fed's session to further hike the interest rate. This week, many currencies paired with the USD had been pushed back to their previous lows.
EURUSD, for instance, had retested a new all-time-low yesterday at 1.06100. The same was applicable for GBPUSD, which fell to 1.24790 during the Asian session today. Gold and Silver have been thrown into a ranging market in the last two days, with gold hovering above 1840 and Silver at 21.640. The stock and crypto market has been down, too, as investors have been eager to safely guide their capital in the face of the current uncertainty.
Understanding the CPI and its impact on the market
The Consumer Price Index (CPI) measures the change in the price of goods and services given to consumers. This monthly data by the Bureau of Labour Statistics helps determine the overall inflation rate.
The outcome of this report is significant as higher reading shows inflation has not been curtailed.
Thus, any further increase from this data will push the Fed to hike the interest rate more aggressively during next week's next Fed session. The previous reading for this data is 0.3%, while the forecast is 0.7%. A higher reading would mean temporary bearishness for the dollar until the next Fed meeting. They will be expected to increase the interest rate for the dollar to stand firm again.
Added to this is the Core CPI, which will be given alongside it also.
The Core CPI measures the change in consumer goods and services prices, excluding food and energy. More attention is given to this later data as it comprises the more significant part of the CPI report and serves as the primary point for determining the rising inflation rate. The forecast for this data is 0.5%, while the previous reading is 0.6%.
What effect will the CPI data have on Commodities and Cryptocurrency prices?
As expected, the outcome of the CPI data will exert substantial volatility in the market today. Higher reading from this data shows inflation is still increasing rather than diminishing. This will push investors back to risk-on mode to invest in Crypto and stocks. An emerging weakening dollar will favour Gold and Silver, the two major commodities.
On the contrary, should the data come out lower than forecast, indicating that the previous interest rate hike had gradually reduced inflation? The effect is that the dollar will be stronger and discount on other pairs, including cryptocurrency and commodities.