The spotlight today is firmly on the release of US CPI data for November. Expectations are for headline inflation to tick up from 2.6% to 2.7%, continuing its rebound from the September low of 2.4%. Meanwhile, core CPI is forecast to hold steady at 3.3%, staying in the 3.2%-3.2% range it has maintained since June.
Unless today’s data deviates significantly from expectations, it is unlikely to deter Fed from delivering a widely anticipated 25bps rate cut next week, bringing the federal funds rate to 4.25-4.50%. Fed fund futures currently reflect an 86% probability of this move.
But more critically, today’s readings could solidify the case for a pause in January, supported by futures pricing nearly 80% probability of such an outcome.
A pause would allow policymakers to digest the inflationary implications of upcoming fiscal and trade policies under President-elect Donald Trump. Current Treasury Secretary Janet Yellen cautioned that Trump’s tariffs pose a dual risk of “derail the progress” on inflation and have “adverse consequences on growth”, creating a potential headache for Fed as it balances these challenges.
Technically, EUR/USD would be a key to watch in reaction to US CPI. Recovery from 1.0330 short term bottom is seen as a corrective move, might could have completed at 1.0629 already. Break of 1.0471 support will suggest that fall from 1.1213 is ready to resume through 1.0330. Next target will be 61.8% projection of 1.0936 to 1.0330 from 1.0629 at 1.0254.
