The United States (US) Bureau of Labor Statistics (BLS) will release the highly significant Consumer Price Index (CPI) data for November on Thursday at 16:30.
The inflation report will not include CPI data for October, and the monthly CPI value for November will also not be shared; the reason for this is the inability to collect data during the government shutdown. Therefore, investors will closely monitor the annual CPI and core CPI values to understand the inflation dynamics that could affect the Federal Reserve's (Fed) policy outlook.
What is expected in the upcoming CPI data report?
According to changes in CPI, inflation in the US is expected to rise by 3.1% year-on-year in November, which is above the September figure. Core CPI inflation, excluding volatile food and energy items, is expected to increase by 3% during this period.
TD Securities analysts forecast that annual inflation will rise faster than expected, but core inflation will remain stable.
TD Securities analysts stated, 'We expect US CPI to increase by 3.2% year-on-year in November - the fastest rise since 2024. The reason for this increase will be the rise in energy prices; we expect core CPI to remain stable at 3%.'
How could the US Consumer Price Index report affect the Dollar?
Ahead of the inflation data to be announced on Thursday in the US, investors see the probability of the Fed cutting rates by 25 basis points in January as nearly 20%. This rate is sourced from CME FedWatch Tool data.
According to the delayed official employment report from BLS, non-farm payrolls fell by 105,000 in October and rose by 64,000 in November. Additionally, the unemployment rate increased from 4.4% in September to 4.6% in November. These figures did not change market pricing for the Fed's decision in January; the sharp decline in non-farm payrolls in October was expected due to the impact of public jobs lost from the government shutdown.
Atlanta Fed President Raphael Bostic argued in a blog post published Tuesday night that the complex employment report did not change the policy outlook and stated that 'multiple surveys indicated higher costs, and companies are persistent in raising prices to maintain profit margins.'
A headline annual CPI inflation reading of 3.3% or above could confirm the Fed's decision to keep rates steady at the January meeting and may initially strengthen the US Dollar (USD). Conversely, the announcement of an annual inflation value of 2.8% or lower could lead the market to expect a rate cut from the Fed in January. In such a scenario, there could be intense selling pressure on the USD with the initial reaction.
FXStreet European Session Chief Analyst Eren Sengezer briefly evaluates the technical outlook for the US Dollar Index (DXY):
'The short-term technical outlook indicates that the downward trend in the Dollar Index is still continuing, but there are signals that negative momentum is weakening. The Relative Strength Index (RSI) on the daily chart has recovered above 40, and DXY is holding above the Fibonacci 50% retracement of the September-November rise,' he said.
'The 100-period Simple Moving Average (SMA) stands out as a pivot point at 98.60. If DXY manages to rise above this level and turn it into support, technical sellers may distance themselves. In such a case, the Fibonacci 38.2% retracement at 98.85 will be the first resistance; thereafter, the 200-day SMA and Fibonacci 23.6% retracement in the 99.25-99.40 range will emerge as new resistance,' he said.
'In downward movements, the Fibonacci 61.8% retracement level at 98.00 provides significant support; following that, 97.40 (Fibonacci 78.6% retracement) and 97.00 (psychological level) come next,' he added.