Inflation in the United States (US), as measured by the change in the Consumer Price Index (CPI), declined to 2.3% on a yearly basis in April from 2.4% in March, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This reading came in below the market expectation of 2.4%.
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The core CPI, which excludes volatile food and energy prices, rose 2.8% on a yearly basis, matching the March print and analysts’ estimate. On a monthly basis, the CPI and the core CPI both rose by 0.2%.
Market reaction to US inflation data
These figures don’t seem to be having a significant impact on the US Dollar’s (USD) performance against its major rivals. At the time of press, the USD Index was down 0.25% on the day at 101.53.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.20% | 0.65% | 1.30% | 0.66% | -0.10% | 0.38% | 0.95% | |
| EUR | -1.20% | -0.42% | 0.66% | -0.05% | -0.65% | -0.33% | 0.24% | |
| GBP | -0.65% | 0.42% | 1.25% | 0.38% | -0.22% | 0.02% | 0.66% | |
| JPY | -1.30% | -0.66% | -1.25% | -0.65% | -2.01% | -1.76% | -0.59% | |
| CAD | -0.66% | 0.05% | -0.38% | 0.65% | -0.49% | -0.29% | 0.28% | |
| AUD | 0.10% | 0.65% | 0.22% | 2.01% | 0.49% | 0.23% | 0.87% | |
| NZD | -0.38% | 0.33% | -0.02% | 1.76% | 0.29% | -0.23% | 0.54% | |
| CHF | -0.95% | -0.24% | -0.66% | 0.59% | -0.28% | -0.87% | -0.54% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US Consumer Price Index (CPI) data at 03:00 GMT.
- The US Consumer Price Index is set to rise 2.4% YoY in April, the same growth rate as in March.
- The core CPI inflation is forecast to hold steady at 2.8% last month.
- April’s inflation data could impact the Fed’s policy outlook, rocking the US Dollar.
The high-impact United States (US) Consumer Price Index (CPI) inflation report for April will be published by the Bureau of Labor Statistics (BLS) on Tuesday at 12:30 GMT.
The CPI data will likely have a significant impact on the US Dollar’s (USD) performance and the Federal Reserve’s (Fed) path forward on interest rates.
What to expect in the next CPI data report?
As measured by the CPI, inflation in the US is forecast to rise at an annual rate of 2.4% in April, at the same pace as in March. The core CPI inflation, which excludes the volatile food and energy categories, is expected to stay at 2.8% year-over-year (YoY) in the reported period, as against a 2.8% growth in the previous month.
On a monthly basis, the CPI and the core CPI are projected to rise by 0.3% each.
Previewing the report, analysts at BBH highlighted: “Keep an eye on super core (core services less housing), a key measure of underlying inflation. In March, super core inflation fell to a four-year low of 2.9% YoY vs. 3.8% in February. Higher tariffs can ultimately derail the disinflationary process.”
How could the US Consumer Price Index report affect EUR/USD?
At its May policy meeting last week, the Fed kept the federal funds rate unchanged in the range of 4.25% to 4.50%, maintaining a cautious stance on the policy outlook. The Fed’s policy statement underscored that risks of higher inflation and unemployment had risen.
During the post-policy meeting press conference, Fed Chairman Jerome Powell noted that near-term inflation expectations have increased due to tariffs and added that it’s time for them to wait before adjusting policy.
The CME FedWatch Tool currently indicates that the odds of a 25 basis points (bps) rate cut in June stand at 15%, down from about 34% at the start of the month.
Over the weekend, the US and China said they made substantial progress at the high-level trade negotiations in Geneva, Switzerland. The highly anticipated US-China joint statement on the first round of trade talks showed that both sides agreed to suspend part of their tariffs for 90 days, with tariffs to come down by 115 percentage points (US cut levies to 30% from 145% and China to 10% from 125%).
Amid US-China trade deal optimism, the US Dollar (USD) build on its recent recovery momentum heading into the inflation data release. A surprise uptick in the annual headline CPI inflation print could affirm bets that the Fed will hold the policy in June. In this case, the USD could see another leg higher in an immediate reaction, smashing the EUR/USD pair back toward the 1.1000 threshold.
Conversely, a softer-than-expected reading could revive the USD downtrend on renewed dovish Fed expectations, helping EUR/USD stage a comeback toward the 1.1300 round figure.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains:
“The Relative Strength Index (RSI) indicator on the daily chart has pierced through the midline from above as EUR/USD extends the break below the 21-day Simple Moving Average (SMA) at 1.1317 after having failed several attempts to find acceptance above the 1.1380 hurdle this month.”
“On the upside, the immediate resistance is at the 21-day SMA at 1.1322, above which the 1.1380 static level and 1.1450 psychological barrier will be targeted. Alternatively, the first support could be spotted at the 50-day SMA at 1.1063 and the 1.1000 mark.”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
