US CPI Inflation Report Critical for Fed’s Rate Decision

June 13, 2023 11:51

The US CPI inflation report for May will draw investors’ attention later today, just 24 hours before the Fed announces its interest rate decision. In the UK, the unemployment rate fell to 3.8% in the three months to April, although analysts were expecting to see a 4.0% figure.

Commenting on the unemployment report, economists suggested that while the reading is good news for the UK economy, the Bank of England may have to keep interest rates higher for longer than anticipated.

In China, the country’s central bank announced its decision to cut its seven-day reverse repo rate, hinting at further monetary policy easing ahead and making the yuan hit a six-month low against the US dollar.

US May CPI reading to influence Fed policy?

One of the major releases this week will be the US CPI inflation data in May which will be provided by the Bureau of Labour Statistics (BLS). May’s inflation report is important as it will give more insights regarding consumer prices that will be taken into consideration by the Fed in this upcoming monetary policy meeting.

Economists suggest that headline inflation fell to 4.1% in the last month of spring, on annualised basis, but core CPI is likely to have remained unchanged at 5.3%. A report published by ING on June 9th said, “Tuesday’s CPI report could see pricing move even further in favour of a hike – currently the consensus is for core CPI to come in at 0.4% month-on-month, but if we get a shock 0.5% that could be sufficient to convince enough FOMC members to vote for a hike.”

UK GDP grows in April?

The Office for National Statistics (ONS) will publish its monthly GDP report. Market analysts suggest that the UK’s economy grew by 0.2% on a month-to-month basis in April, gaining some ground when compared with March’s -0.3% figure. 

The British Chambers of Commerce (BCC), a business lobby group, said the country’s economy would probably avoid a recession. The BCC report noted, “we are on course to only narrowly avoid a recession. With anaemic growth rates predicted into the future, there is a real danger of slipping back into recession territory at any point,” forecasting that the GDP would expand by 0.3% in 2023.

The Confederation of British Industry (CBI) followed suit with the BCC forecast, reversing its own for this year of a 0.4% decline, and now expects growth of 0.4%.

Morgan Stanley suggests US dollar may strengthen

Morgan Stanley analysts suggest that the US currency has the potential to surge against its competitors. Their report to clients said: “we believe that the USD has the potential to continue to gradually strengthen this year. We point out that even if the global economy manages to circumvent a full-scale recession, the asymmetry in central banks' reactions coupled with uninspiring economic growth rates indicates that investors are likely to maintain a defensive stance in the markets. Furthermore, the positive carry that the USD offers makes it an attractive option for investors.” However, traders should remain watchful of similar forecasts and adjust their strategies using risk management tools at their disposal.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.