Investors turn their attention to the US Consumer Price Index, specifically after January’s employment figure struck doubt in traders’ minds. More or less, all investors had expected the Federal Reserve to increase the Federal Fund Rate by another 0.25% before confirming no more hikes for the foreseeable future. However, the latest Non-Farm Payroll figure and Unemployment Rate illustrate the imbalance in the employment sector and the risks of inflation again rising.
The US Dollar and US Indices have slightly declined ahead of this morning’s European Session. However, the price movement will all depend on the latest inflation figures. Most economists believe the CPI figure will read 0.5%, which would be the highest since July 2022. However, even with the higher CPI figure, the yearly inflation rate is expected to decline to 6.2%. The Core Consumer Price Index, which illustrates the inflation rate excluding food and fuel, is also expected to increase slightly to 0.4%.
Investors will be evaluating three factors. First, how much will the Federal Reserve hike interest rates? Second, will the Fed keep hiking interest rates for more than 1 month, third, how long will the central bank keep rates this high? Hawkish comments can significantly pressure the US stock market again.
Many economists have advised that the CPI figure would need to come in at 0.4%, the highest, to experience another solid bullish run for the stock market. However, investors should note it is vital to monitor the price reaction to ensure being appropriately positioned.
US Dollar - Mixed Price Movement Ahead of Tomorrow’s CPI Release
The US Dollar during this morning’s Asian Session has declined against most major pairs, including the Euro, Pound but has increased against the Japanese Yen. However, volatility remains low on the EUR/USD and GDP/USD as order flow books show a lack of activity. This is understandable, considering the importance of tomorrow’s CPI release, but traders should be cautious of a possible change in trend. The US Dollar Index has declined to 103.59, which results in a slight decline since Friday.
Currently, the Dollar is seeing the most substantial decline against the EUR/USD, but the exchange rate continues to follow a downward trend pattern. The price also trades at a support level when following regression channels and other trendlines. Investors will be eager to see how the exchange rate reacts during the overlap between the European and US Trading Sessions this afternoon.
The price of the EUR/USD will be influenced by tomorrow’s inflation rate and the Federal Reserve’s response. The US Dollar will struggle to maintain a longer-term trend if the Fed fails to be more restrictive. Investors note that the European Central Bank remains hawkish and shows no signs of slowing. The President of the German Federal Bank advises investors that the ECB should be more decisive in bringing inflation under control and confirms he favors more hikes. Regulator members Luis de Guindos, Klaas Knot, and Isabelle Schnabel also express a similar view.
Bitcoin/USD - Higher Volatility Expected after CPI Release
Bitcoin is another asset likely to be influenced by tomorrow’s CPI announcement and the Fed’s reaction. This is primarily due to the cryptocurrency market’s correlation with risk sentiment and global monetary policies. A positive note for Bitcoin is that the Prelim UoM Consumer Sentiment on Friday increased from 64.9 to 66.4. Strong sentiment tends to result in a higher risk appetite. However, this will not be important if inflation signals resilience.
The overall market capitalization has declined slightly over the past 2-weeks, but the figure remains above $1 trillion, which is critical. On the positive side, Bitcoin's market share has increased to 41.50%. This is significantly higher than data seen in 2022, where this figure bottomed out at just below 38%.
Bitcoin’s price is hovering above a resistance level which has been flipped onto the support. The decline witnessed mid-last week has lost momentum over the weekend and this morning. However, even with a loss of downward momentum, the price has not obtained any significant bullish signals so far. The price is expected to experience higher volatility after tomorrow’s Consumer Price Index announcement. A higher than expected CPI figure can trigger more pressure, whereas, a lower figure may fuel another bullish trend
Summary:
- The US Dollar experiences mixed price movement as traders focus on tomorrow’s CPI announcement.
- CPI data is expected to show 0.5% which is the highest since July 2022 and Core CPI figures are also expected to rise to 0.4%.
- The ECB continues to send bullish indications to market participants as inflation remains higher than in the US.
- Bitcoin market share has increased to 41.50% and the overall market capitalization for the crypto market remains above $1 trillion.
