🎈Will US CPI jump again?

Release of the US CPI inflation report for May is the second most important macro event of the week. However, it's market impact may be even bigger than that of yesterday's ECB decision. It was suggested that US inflation may have peaked already but data on fuel prices or real estate and car prices paint a different story - peak may still be ahead. Market consensus point to headline price growth remaining unchanged at 8.3% YoY and range of forecasts (8.0-8.5%) is relatively narrow. One factor that may support view of CPI staying unchanged are base effects - US CPI stood at 5% YoY in May 2021, compared to 4.2% YoY in April 2021.

A high inflation reading may discourage Fed from thinking about rate hike pause, at least for now. Three 50 basis point rate hikes are priced in now. US dollar is very strong with EURUSD dropping below 1.0600. On the other hand, Wall Street futures erase morning bounce and resumed drop. US500 trades slightly above 4,000 pts.

A strong USD suggests that investors are expecting a higher inflation reading. EURUSD trades at the lowest level since May 23, 2022. Source: xStation5