The US Bureau of Labor Statistics (BLS) will publish March Consumer Price Index (CPI) data on Friday. The report is expected to show a rise in inflation, led by rising oil prices after the United States (US) and Israel launched a joint attack on Iran.
The monthly CPI is expected to rise by 0.9%, following the 0.3% increase recorded in March, while the annual reading is expected to rise above May 2024 at 3.3%, from 2.4% in February. Core CPI figures, which exclude unchanged food and energy prices, are expected to come in at 0.3% and 2.7%, month-on-year, respectively.
From the beginning of the conflict in In the Middle East on February 28, the West Texas Intermediate (WTI) barrel rose by almost 40%, despite the sharp decline that occurred following announcement of a The two-week standoff between the US and Iran ended earlier this week. In March, WTI gained almost 50%, rising from about $67 per barrel to settle near $100 by the end of the month.
Forecasting inflation data, “the recent increase in inflation will be the main reason for the 0.9% m/m jump in the CPI. The Y/Y rate will jump by about 1pp to 3.3% in March, two years,” said TD Securities analysts.
“Inflation will be protected from the shock of oil at the moment, rising by 0.27% m / m. We are looking to move forward to continue to take action to raise commodity prices.” Supercore inflation should remain firm at 0.3%.
What to Expect in the Next CPI Data Report?
CPI figures for March will showing results of oil prices are higher than inflation, which should not be surprising. Although the annual CPI inflation rises to 3.3% in March, as predicted, traders can see that as a temporary increase if they remain convinced that the price of Oil will drop significantly, with a stable agreement in the Middle East to allow the Strait of Hormuz to remain open.
However, growing uncertainty over the extent of the ceasefire and Iran’s desire to maintain control of the crisis in the peace deal complicates the picture and cast doubt on lower oil prices. Therefore, developments in the Middle East may influence inflation expectations, rather than March’s CPI reading.
Minutes from the Federal Reserve’s (Fed) March meeting showed that many policymakers are already pushing back. time to reduce the cost of acquisitionreflecting ongoing concerns that inflation may be more persistent than expected.
In fact, many indicated that the price risk would remain high for a long time, especially if the high oil prices were to go through a wider range.
“As long as inflation in non-energy commodities is weak, the Fed can focus on the price of oil and avoid raising prices amid a mixed labor market in the US,” BBH analysts said.
How Will the US Consumer Price Index Affect the Euro/USD?
Markets currently see a 75% chance of the Fed leaving the policy unchanged at 3.5%-3.75% by the end of the year, compared to a 17% chance seen on March 9, according to the CME FedWatch Tool.
A monthly CPI print that is stronger than forecast for March is unlikely to affect market rates of Fed interest rates in a significant way.
However, if the publication of hot inflation is combined with the escalation of the conflict in the Middle East and the expectation of the growth of maritime activities in the Strait of Hormuz without returning to its pre-war status in the near future, investors may reassess the possibility of a hike by the Fed in response to the continuous drop in prices. During this period, the US Dollar (USD) can gather strength and forcing EUR/USD to turn south.
Conversely, the USD may remain under bearish pressure – and allow the EUR/USD to increase its return – if the prices of crude oil continue to decline steadily, regardless of the March CPI figures.
In short, the low inflation rate for March is not likely to trigger the main market, while the market’s focus remains on the US-Iran crisis and its impact on Oil prices.
Eren Sengezer, FXStreet European Session Lead Analyst, shares a technical overview of EUR/USD.
“EUR/USD’s near-term technical outlook shows a strong trend. The Relative Strength Index (RSI) indicator on the daily chart rose above 50 for the first time since the start of the US-Iran war and the pair broke above the two-month low line.
“The Fibonacci 50% retracement level of the February-April trend aligns as a resistance to the next level at 1.1730 ahead of 1.1800 (Fibonacci 61.8% retracement) and 1.1900 (Fibonacci 78.6% retracement). If the support fails, technical sellers can show interest, opening the door for an additional slide to 1.1560 (Fibonacci 23.6% retracement) and 1.1500 (circular level, circular).
A note US CPI Inflation Begins to Rise in March, Ending Two-Year Slowdown appeared for the first time BeInCrypto.
