FX Daily: Impact of US CPI mostly depends on equities
At a Glance
The desk anticipates a stronger-than-expected US CPI reading, forecasting a 0.9% month-on-month increase in the headline figure, which could reinforce the hawkish sentiment surrounding the USD curve. This expectation is underpinned by the belief that even a moderate core CPI rise of 0.3% month-on-month will not deter bullish dollar momentum, particularly as geopolitical tensions, such as stalled US-Iran negotiations, may weigh on equity markets. Per the full note source, the interplay between these economic indicators and equity performance will be crucial for dollar strength moving forward.
Key Takeaways
Full Analysis
What the desk is arguing
ING expects a hotter-than-consensus 0.9% MoM US headline CPI print, which would reinforce hawkish momentum in the USD curve even if core CPI rises a moderate 0.3% MoM. The key driver for dollar upside is whether these figures, combined with stalled US-Iran negotiations, finally take the shine off resilient equities.
The desk implicitly rejects the view that core CPI alone matters for the dollar. They argue that a hot headline with moderate core can still be dollar-positive if equities sell off, as the market reprices Fed hawkishness.
Where it sits in our coverage
We maintain a year-end EUR/USD consensus target of 1.075, with a firm spread of 1.04-1.12. This view is broadly aligned with ING's thesis that a hot CPI could support USD temporarily, but we see limited further upside given our range.
Specific firm targets from our coverage: - JPMorgan: Mar26 target at 1.10, aligned with modest USD weakness. - Barclays: Mar26 target at 1.06, leaning softer EUR. - Morgan Stanley: Mar26 target at 1.03, more bearish on EUR.
How other firms see it
JPMorgan is aligned with ING's expectation that hot CPI could lift USD in the short term, but they see scope for EUR recovery. Barclays is contrary, arguing that core CPI is more important and a moderate core will limit USD gains. Morgan Stanley is strongly contrary, expecting USD strength regardless of CPI outcome.
- JPMorgan: aligned, target 1.10
- Barclays: contrary, target 1.06
- Morgan Stanley: contrary, target 1.03
Market Implications
Hot CPI print could initially spike USD, but sustained strength requires equity decline. EUR/USD may test lower end of range toward 1.04 if risk-off persists.
From the original
We expect a hotter-than-consensus 0.9% MoM US headline CPI print today. That can endorse the hawkish momentum in the USD curve even if the core rises at a moderate 0.3% MoM. Upside for the dollar depends more on whether those figures – paired with the stall in US-Iran negotiation
Related speeches
4 itemsFX Daily: Impact of US CPI mostly depends on equities
The current analysis from the desk emphasizes the interplay between US CPI figures and equity market performance, asserting that the strength of the impact will significantly hinge on equity reactions post-release. Per the full note from ING Economics, expectations surrounding CPI are leading traders to closely monitor stock markets for directional cues. Given the elevated volatility observed recently in equities and the upcoming CPI report, traders should brace for potential shifts in currency valuations. The focus remains squarely on how equities react, which may set the tone for broader FX movements.
USD downside risk increasing
The desk is increasingly concerned about the downside risks to the US dollar, particularly in light of recent developments in monetary policy and trade. Per the full note from MUFG EMEA, the dollar has weakened modestly, slipping less than 1% this week, which may signal a broader trend as the market digests the implications of Stephen Miran's appointment to the Fed Board of Governors. This shift could potentially influence Chair Powell's stance ahead of the upcoming US CPI data release on August 12, which is critical for gauging inflationary pressures and subsequent Fed actions. The desk believes that these factors could lead to further dollar depreciation in the near term.
FX Daily: Headlines from Beijing can cap USD
ING Economics argues that headlines from Beijing, particularly around potential fiscal stimulus, can cap USD strength by boosting risk appetite. The desk frames this as a tactical USD-negative catalyst, though it acknowledges the lack of concrete details in current headlines. Consensus remains divided: while some firms see near-term USD downside, others view any rally as a selling opportunity given structural USD support from relative rate differentials. No high-impact calendar events are imminent, leaving price action driven by news flow.
FX Daily: US price check this week
The US inflation data release this week is expected to dictate near-term dollar direction, with market focus on whether disinflation progress continues or stalls. ING Economics highlights that a soft CPI print could weaken the dollar further, while a hot number may revive rate hike fears.
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