CPI is Moment of Truth for the Dollar

CPI is Moment of Truth for the Dollar

What will happen?                      

United States Bureau of Labor Statistics will release monthly CPI and core CPI on February 10, 15:30 GMT+2. The Consumer Price Index measures the average change in prices consumers pay for a basket of goods and services. The CPI statistics cover a variety of individuals with different incomes, including retirees, but do not include specific populations, such as patients of mental hospitals.

How will it affect the dollar?

As you know, inflation in the US hit a record-high level with a 7% rate. As a result, the US created a plan to address rising prices, including the end of bond-buying and hiking rates. However, these measures haven't had the effect yet. Investors worldwide watch closely after the US CPI release because the greenback is the world's reserve currency. Thus, high numbers for the US mean a price boost for almost every county.

The last release on January 12 created a massive bullish movement in EUR/ USD, pushing the pair 900 points higher. This release will likely have the same impact on the USD. However, the numbers can turn out to be less than expected. In that case, USD will rise on expectations of sooner rate hikes or the larger number of hikes for 2022. As for now, the market expects five rate increases throughout 2022.

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How to trade on the CPI release?

Due to the importance of CPI data, it may influence gold and USD pairs. Gold is considered a hedge against inflation, but high numbers increase the chance for rate hikes so that the metal may fall against the greenback.

  • If actual numbers beat expectations – the USD will rise, and gold (XAU/USD) will fall.
  • Otherwise, gold will rise.

Check the economic calendar

Instruments to trade: XAU/USD, EUR/USD, NZD/USD, USD/JPY.

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