US CPI Preview: Base Effect Could Boost USD/JPY, Core Reading Key Ahead of Fed

US CPI Key Points

US CPI expectations: 3.4% y/y headline, 3.5% y/y ‘Core” inflation
Last May’s 0.1% m/m CPI reading will drop out of the year-over-year calculation, potentially driving up headline inflation, but Core CPI could still tick lower on a year-over-year basis
USD/JPY’s year-to-date uptrends remains intact after a bounce from support in the 155.00 area last week.

When is the US CPI Report?

The May US CPI report will be released at 8:30am ET on Wednesday, June 12, 2024.

What are the US CPI Report Expectations?

Traders and economists expect the US CPI report to hold steady at 3.4% y/y on a headline basis, with the “Core” (ex-food and -energy) reading expected to fall to 3.5% y/y.

US CPI Forecast

After Friday’s (much) better-than-expected NFP report, the Federal Reserve’s aspirations for a summer interest rate cut are on life support, and even a pre-election reduction in September is looking questionable. Against that backdrop, this week’s US CPI report is unlikely to have an immediate impact on monetary policy, but it will still shape the Fed’s longer-term progress toward achieving its dual mandate

As many readers know, the Fed technically focuses on a different measure of inflation, Core PCE, when setting its policy, but for traders, the CPI report is at least as significant because it’s released weeks earlier. As the chart below shows, the year-over-year measure of US CPI has flatlined around 3.4% for the better part of a year now, and one of the best leading indicators for future CPI readings, the ISM PMI Prices component, has stopped falling and may be turning higher again:

Source: TradingView, StoneX

As the chart above shows, the “Prices” component of the PMI reports has remained in the mid- to upper-50 region, corresponding to CPI inflation holding steady its same 3-4% range.

Crucially, the other key component to watch when it comes to US CPI is the so-called “base effects,” or the influence that the reference period (in this case, 12 months) has on the overall figure. Last May’s 0.1% m/m reading will drop out of the annual calculation after this week’s reading, opening the door for an uptick in the headline year-over-year CPI reading. The base effect for Core CPI may have the opposite effect, with a 0.4% m/m reading dropping out of the relevant range.

US Dollar Technical Analysis – USD/JPY Daily Chart

Source: TradingView, StoneX

As the chart above shows, USD/JPY’s year-to-date uptrends remains intact after a bounce from support in the 155.00 area last week. This month’s CPI reading may have a more limited impact on the pair than most, given the lack of near-term policy implications and FOMC meeting immediately following it, but as long as it comes in at (or especially better than) expectations, USD/JPY could extend its rally toward 158.00 resistance next. Only a break below 155.00 would call the longer-term bullish trend into question

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.