- Today’s data shows that the annual CPI is now at its highest level since early 2012.
- Inflation data reaffirms a 25 bps rate hike tomorrow.
- Fed’s language, updated economic projections, and the dot diagram will be in focus.
Following a recovery attempt toward the 94 mark in the early trading hours of the Asian session, the US Dollar Index, which tracks the greenback against a basket of six currencies, lost its traction and returned to the mid-93 area as investors remain reluctant to commit to large positions ahead of tomorrow’s FOMC meeting.
The report released by the US Bureau of Labor Statistics on Tuesday showed that the inflation, measured by the annual CPI, improved to 2.8% in May to record its highest reading in more than six years. The core-CPI, which strips food and energy prices, came in at 2.2% on a yearly basis to meet the market expectations. These numbers reassured the markets that the Fed will announce a 25 bps rate hike tomorrow. In fact, the CME Group FedWatch Tool’s probability increased to 93.8% today from 92.5% on Monday.
“We see hawkish overtones from the decision to raise rates and our expectation that the statement will no longer say that the (federal) funds rate is likely to remain below the long-run neutral rate for some time. As the (Federal Open Market Committee) closes in on neutral, we see it as less likely to make promises on the path of policy,” Barclays analysts argue.
The only data scheduled to be released before the FOMC event will be the PPI from the United States, which is expected to rise by 0.3% and 2.8% on a monthly and yearly basis respectively.
Technical levels to consider
The initial resistance for the index aligns at 93.90 (daily high) ahead of 94.45 (Jun. 1 high) and 95 (psychological level/May 29 high). On the downside, supports are located at 93.20 (Jun. 7 low), 92.10 (May 14 low), and 91.30 (Apr. 27 low).
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