• June’s 3.1% YoY growth in the US Consumer Price Index is anticipated, which is a slower rate of increase than May’s 3.3% increase.
• It is anticipated that annual core CPI inflation will remain stable at 3.4%.
• The inflation figures could influence the value of the US dollar and either confirm or refute a September rate cut by the Fed.

On Thursday at 12:30 GMT, the Bureau of Labour Statistics (BLS) will release the much-awaited June Consumer Price Index (CPI) inflation data from the United States (US).

The US Dollar (USD) is anticipating high volatility because the market’s pricing of the Federal Reserve’s (Fed) September interest rate decrease expectations might be greatly impacted by any shocks from the US inflation data.

What’s in store for the upcoming CPI data report?

According to the CPI, US inflation is predicted to grow at an annual rate of 3.1% in June, down from the 3.3% increase seen in May. During the same period, the core CPI inflation rate, which does not include volatile food and energy costs, is projected to remain at 3.4%.

In the meantime, the US CPI is predicted to increase by 0.1% Mum in June following a flat May. To match the prior gain, a 0.2% increase in the monthly core CPI inflation is predicted.

Earlier in the week, US Congress heard testimony from Federal Reserve (Fed) Chairman Jerome Powell, who also delivered the Semi-Annual Monetary Policy Report. Powell reaffirmed in his prepared remarks that the policy rate shouldn’t be lowered until they have more assurance that inflation will continue to trend sustainably towards 2%. “The most recent labor market data sent a pretty clear signal that the labor market has cooled considerably,” he said in response to a question regarding the most recent changes in the employment market.

Ultimately, his comments did not affect market expectations for a September rate cut by the Federal Reserve. The likelihood that the Fed will maintain the policy rate in September is roughly 26%, essentially unchanged from its pre-event level, according to the CME FedWatch Tool.

“We expect the June CPI report to show that core prices remained largely under control after posting a surprisingly soft 0.16% gain in May,” TD Securities analysts wrote in a weekly report, previewing the June inflation data.

Given the continued significant respite from energy prices, headline inflation most likely printed flat month over month (-0.01%). Observe that there are more chances for another dovish surprise to a rounded 0.1% increase based on our unrounded core CPI projection of 0.18% m/m, the analysts continued.

How might EUR/USD be impacted by the US Consumer Price Index report?

Although the market’s posture indicates that investors are not yet entirely convinced, they are still bullish about a September rate cut by the Federal Reserve. Therefore, a monthly core CPI increase that is less than expected—that is, a reading of 0.1% or less—may validate a policy change in September. In this case, the instant response could put selling pressure on the US dollar.

Conversely, a rise of 0.3% or more would indicate that disinflation is not progressing as expected, leading market players to reevaluate the likelihood of a September interest rate cut. In this scenario, a significant drop in the EUR/USD exchange rate shortly could be possible as investors factor in a growing policy divergence between the Fed and the European Central Bank (ECB).

Offering a quick technical view for EUR/USD, Eren Sengezer, Lead Analyst for FXStreet’s European Session, explains: “After the drop earlier in the week, EUR/USD holds above the 100-day and the 200-day Simple Moving Averages (SMA), suggesting sellers’ caution. Furthermore, the daily chart’s Relative Strength Index (RSI) indicator maintains a bullish bias in the short term by staying above 50 ahead of the US inflation report.

Interim resistance is formed at 1.0850 by the Fibonacci 23.6% retracement level of the mid-April–June rally. After breaking beyond this barrier, the EUR/USD may encounter resistance at the psychological level of 1.0900–1.00915 (the high from June 4) before moving on to 1.1000. If the pair breaks below 1.0800 (100-day SMA, 200-day SMA) and begins to use this level as resistance, technical sellers may intervene and push EUR/USD to stretch lower. The next support in this scenario could be identified as the 20-day simple moving average (1.0750) before the Fibonacci 78.6% retracement at 1.0680.