11.09.202612:32 Forex Analysis & Reviews: CPI Report and Its Potential Impact on the Fed and the Dollar (USD/JPY and GBP/USD May Resume Their Declines)

Today's main event will be the release of the US consumer inflation report for August, which could influence the Fed and affect its interest-rate decision.

First, let us look at yesterday's market reaction to the release of producer inflation data, which showed an increase in both the headline and core figures in August. The market naturally reacted clearly to these developments: Treasury yields surged to levels not seen since autumn 2023, after which the Federal Reserve ended its cycle of interest-rate hikes and began cutting rates in autumn 2024.

But let us return to the situation in the markets. The increase in producer inflation sharply raised the probability of a rate hike at next week's September Fed meeting. The dollar strengthened, but its upward movement was limited. This was partly due to the upcoming release of the consumer inflation report today. Unlike the PPI figures, the CPI is not expected to accelerate on a year-on-year basis. Instead, the year-on-year growth rate is expected to remain at 3.4% for the headline figure, while the core component is expected to decline from 2.5% to 2.4%.

How might the markets react?

I believe that if the report is in line with expectations, the market may interpret this as an opportunity for the Federal Reserve to continue its pause in raising interest rates. Under this scenario, the dollar would come under pressure, while cryptocurrencies and stock indices would receive support, as would gold and silver prices. However, if there is a surprise and the report shows an unexpected increase, potentially driven by higher crude oil prices, the opposite market reaction could be observed amid stronger expectations of higher interest rates.

In conclusion, I would note that both scenarios are plausible, and the probability of either one occurring is approximately 50%.

Forecast for the Day:

USD/JPY

The pair is trading below 156.65 while awaiting the US consumer inflation report. The pair could fall toward 152.15 if the report is in line with expectations. The 153.87 level could serve as a selling level. The stop-loss could be placed at 155.08.

GBP/USD

The pair is trading above the 1.3500 support level. The CPI report could support the dollar if the figure comes in slightly above forecasts. The pair could fall toward 1.3420. The 1.3487 level could serve as a selling level. The stop-loss could be placed at 1.3568.