US CPI Preview: Could Inflation Reaccelerate after a Strong Jobs Report?

US CPI Key Points

US CPI expectations: 2.3% y/y headline inflation, 3.2% y/y “core” inflation
The Fed has shifted its focus to employment data, but after a stellar jobs report, could inflationary pressures pick up again?
EUR/USD maintains a bearish outlook as long as it remains below the key 1.10 level.

When is the US CPI Report?

The September CPI report will be released on Thursday, October 10 at 8:30 ET.

What are the US CPI Report Expectations?

Traders and economists expect the US CPI report to fall to 2.3% y/y on a headline basis, with the “Core” (ex-food and -energy) reading expected hold steady at 3.2% y/y.

US CPI Forecast

As we noted last month, the Fed’s decision to shift its focus from inflation to the labor market means that inflation data, including tomorrow’s CPI report, is likely to become less market-moving than it had been.

Despite that logical observation, this month’s CPI report may still lead drive market volatility coming on the back of Friday’s stellar NFP report, a reading that hints at the potential for renewed upside risks to inflation. As of writing, the CME’s FedWatch tool is actually hinting at an outside chance of no interest rate cut whatsoever at the Fed’s meeting early next month, and it would likely take both a hotter-than-expected CPI reading this month and another strong jobs report next month to convince the Fed to pause after starting its rate cutting cycle with a 50bps reduction last month.

As many readers know, the Fed technically focuses on a different measure of inflation, Core PCE, when setting its policy, but for traders, the CPI report is at least as significant because it’s released weeks earlier. As the chart below shows, the year-over-year measure of US CPI has resumed its decline from the 2022 peak in recent months, and one of the best leading indicators for future CPI readings, the ISM PMI Prices component, may finally be rolling over again:

Source: TradingView, StoneX

As the chart above shows, the “Prices” component of the PMI reports has slipped to its lowest level since February, hinting at the potential for more downside in the headline CPI reading in the coming months.

Crucially, the other key component to watch when it comes to US CPI is the so-called “base effects,” or the influence that the reference period (in this case, 12 months) has on the overall figure. Last September’s 0.4% m/m reading will drop out of the annual calculation after this week’s reading, opening the door for a drop in the headline year-over-year CPI reading as long as the month-over-month reading comes in lower than that.

US Dollar Index Technical Analysis – EUR/USD Daily Chart

Source: TradingView, StoneX

Looking at the daily chart for the world’s most widely-traded currency pair, EUR/USD broke definitively below support at the 1.10 handle last week and has spent the first half of this week consolidating below that key level. In the short term, the technical bias points toward a continued drop as long as the CPI report comes in at or above expectations. To the downside, the next support level to watch is the 100-day MA at 1.0930, followed by the 200-day MA at 1.0875.

Meanwhile, a cool CPI report could lead to a near-term bounce in EUR/USD, but traders are likely to treat it with skepticism unless/until the pair recaptures the 1.10 barrier.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

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