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 itemsGoldman expects US core CPI to ease to 2.8% year-on-year in June
The desk views Goldman's forecast of a softer core CPI print for June, potentially at 2.8% YoY, as reinforcing the prevailing narrative of disinflation in the US economy. Per the full note, if this materializes, it may lessen immediate upward pressure on the dollar by bolstering support for bonds. The expectation that the core CPI will rise by only 0.17% month-on-month, below the consensus of 0.20%, suggests that inflationary pressures could be easing despite external shocks, such as the energy impact from ongoing geopolitical tensions.
FX Daily: Dollar debasement trade in retreat
The desk views the dollar as maintaining its support ahead of a critical US May CPI release, as detailed in the latest research from ING. With real rates having surged by 60 basis points over the past six weeks, market participants are anticipating a likely December Fed rate hike contingent on core CPI performance. This sets the stage for potential dollar strength unless today's CPI data reveals weaknesses in consumer spending, particularly in the shelter sector, which might soften short-term rates and, by extension, the dollar's value. Per the full note, a solid core CPI number today would likely fortify bullish sentiment around the dollar.