Core CPI is projected to climb to 5.9% last month from 5.5% previously

The US dollar was trading lower on Wednesday, struggling to regain upside momentum amid positive risk sentiment across the financial markets. The USD index failed to regain the 96.00 figure earlier in the week to come under renewed selling pressure as traders cheered upbeat corporate earnings while shifting focus to the US CPI report due later today.

Inflation remains in focus in the US as its record spike to nearly 40-year highs pushes the Federal Reserve to tighten policy more aggressively than expected previously. So monitoring the figures, markets are estimating how quickly and how far the Fed’s interest rates will rise.

In January, consumer prices are forecast to increase at the fastest rate since February 1982. In particular, the annual CPI is expected to reach 7.3% after a gain of 7.0% in December. The monthly increase will likely be unchanged at 0.5%. Meanwhile, core CPI is projected to climb to 5.9% last month from 5.5% previously

Should the data confirm a further ascent in consumer inflation, the dollar will jump across the market at least in a knee-jerk reaction to the release. Of note, immediate moderation in CPI will not reduce interest rate expectations, which implies that if the figures come in lower than expected, the dollar’s bearish reaction would be modest and short-lived.

Technically, the USD index could stage a bounce from local lows below 95.50 to get back above the 96.00 mentioned figure if the intermediate barrier around 95.75 gives up. Some deterioration in risk sentiment would add to bullishness surrounding the greenback due to its safe-haven status. In a wider picture, the buck may need a strong bullish catalyst to regain recent losses and climb back to mid-2020 highs seen late last month just below 97.50.


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