ATFX International: US CPI data hits in January, high inflation is expected to continue to ease

atfxInternational: Today at 21:30, the US Department of Labor will release the nominal CPI growth rate and core CPI growth rate data for January 2023. The former has declined for six consecutive months, and the latter has also declined for three consecutive months. It is expected that the growth rate in January will continue to decline. The nominal CPI growth rate was 6.5%, and the expected value was 6.2%; the core CPI growth rate was 5.7%, and the expected value was 5.5%. The evening data is likely to be in line with expectations, and both the nominal CPI growth rate and the core CPI integer will decline slightly. The continued easing of high inflation means that the Federal Reserve will no longer adhere to the aggressive interest rate hike policy, and the dollar index, which has lost the support of tightening monetary policy, is likely to fall further. Since February, non-US currencies and gold and silver, represented by the euro, have maintained a correction trend. The main reason is that the US non-farm payrolls report in January was quite beautiful, which led the market to believe that the Federal Reserve still has enough room to raise interest rates aggressively. However, the purpose of the Federal Reserve's interest rate hike is to contain high inflation, and it will not blindly raise interest rates because the labor market is still able to bear it. If the CPI growth rate data in the evening decreases, it means that the problem of high inflation has been basically solved. The previous interest rate hike expectations triggered by the non-farm payrolls report will be greatly reduced, and the dollar index will also be under pressure.

Any economic data release has the potential to exceed expectations, and CPI data is no exception. Economic data that exceeds expectations tend to trigger sharp fluctuations in financial marekts. If the CPI growth rate does not decrease but increases in the evening - of course, this probability is very low - under the combined influence of high inflation and non-farm payrolls reports, the dollar index will likely test the short-term resistance level of 104.

In addition to the CPI data, there is a lot of information that can be used to predict the future monetary policy of the Federal Reserve, such as the speeches of Federal Reserve officials. Recently, Harker, the president of the Federal Reserve Bank of Philadelphia, said that the Fed's shift to smaller interest rate hikes is a good strategy, and if inflation continues to ease, it will be possible to cut interest rates in 2024. Harker's view obviously does not support the niche market expectation of another aggressive interest rate hike. Atlanta Fed President Bostic said that the Federal Reserve may need to raise borrowing costs to higher levels than previously expected. Bostic's remarks mean that the Federal Reserve may raise interest rates more frequently than market expectations this year, and the final interest rate may also be higher than the 5.1% previously thought by the market. Fed Chairperson Jerome Powell said the process of falling inflation would be bumpy and would require further interest rate hikes, in a restatement of the central bank's decision on interest rates in early February.

The category that has the greatest impact on the US CPI data is energy products, especially international oil prices. Since June last year, the WTI has peaked and fallen, and the cumulative decline has exceeded 30% so far, indicating a weak pattern. It is precisely because of the continued decline that the US nominal CPI growth rate has continued to decline. Once the WTI returns to its upward trend, the US nominal CPI growth rate has a relatively high probability of rising again. Oil prices have become one of the tools for Russia and the Middle East to resist economic sanctions from European and American countries. Russia and the Middle East benefit from rising oil prices; European and American countries benefit from falling oil prices. Recently, Russia announced a daily reduction of 500,000 barrels, in order to boost oil prices and counter the price restrictions of European and American countries. The next day, the US Department of Energy announced the release of 26 million barrels of strategic oil reserves, with a very clear intention: to hedge against the impact of Russia's production cuts. We predict that international oil prices will fluctuate between $70 and $80 in the first quarter of this year, and the growth rate of the US nominal CPI will continue to decline.

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