Here’s What To Expect After Thursday’s U.S. CPI Report

Key Insights

• Traders wait for the release of U.S. inflation reports, which will have a material impact on market dynamics. 
• If inflation exceeds expectations, the U.S. dollar will move towards yearly highs, while stocks will likely test new lows. 
• In case Inflation Rate declines below the 8.0% level, riskier assets will get significant support. 

U.S. Inflation Rate Is Expected To Decline To 8.1%

At this point, traders remain focused on Fed’s actions. The Fed is determined to fight inflation, and its actions may push the world economy into a recession. Not surprisingly, inflation data from the U.S. has a significant impact on various asset classes.

Tomorrow, traders will have a chance to take a look at the CPI reports from the U.S. Inflation Rate is expected to decline from 8.3% in August to 8.1% in September, while Core Inflation Rate is projected to grow from 6.3% to 6.5%.

Today’s PPI reports were not optimistic. The reports indicated that Producer Prices increased by 0.4% month-over-month in September, compared to analyst consensus of 0.2%.

Inflation remains a serious problem, and it remains to be seen whether it will settle below the 8.0% level in the upcoming months. Importantly, Core Inflation Rate is expected to grow to 6.5%, which is a bullish catalyst for the U.S. dollar.

U.S. Dollar May Test New Highs If Inflation Exceeds Expectations

The forex market will remain extremely sensitive to inflation reports. In case Inflation Rate and Core Inflation Rate exceed analyst expectations, the U.S. Dollar Index may gain significant upside momentum and move towards yearly highs at 114.78.

In this scenario, S&P 500 will likely test new lows as traders will bet on aggressive rate hikes from the Fed. Commodities like gold and silver will also find themselves under serious pressure if the U.S. dollar tests new highs.

If the reports indicate that Inflation Rate declined below the 8.0% level, riskier assets will get a serious boost. Stocks will rally as S&P 500 is trading near yearly lows on fears that aggressive Fed will push the economy into a recession.

Traders should note that there will be no CPI reports between October 12 and the Fed meeting on November 2, so the upcoming reports will have a major impact on Fed’s policy. In this light, traders should be prepared for strong moves if inflation reports do not meet analyst expectations.

For a look at all of today’s economic events, check out our economic calendar.