US inflation data to take center stage today | Forexlive
After a hot US jobs report last week, inflation data is starting to come back into stronger focus again upon the turn of the year. For one, the disinflation process is starting to slow down. Then, we have the prospect of Trump’s tariffs and tax policies to consider. All of that running against a backdrop of a more resilient economy in general.
As pointed out yesterday: “Recent inflation data has also shown that the disinflation process is slowing somewhat. Looking at prior reports, we can see that core monthly inflation has come in at +0.3% in the last four months. You have to go all the way back to July for a +0.2% reading. According to ING, the run rate for the past four reports will translate to 4% inflation on an annualised basis. That’s not good news if we continue to see the monthly readings come in as such.”
The estimated monthly reading for core inflation is +0.2% today. That will help to ease concerns after four straight months of +0.3% readings. And the “inflation is dead” camp will almost certainly be hoping for the figure to come in below expectations, and perhaps so is the Fed.
The central bank has been pushed to the sidelines now but they will certainly want to at least have more options and flexibility in the months ahead. So, if price pressures don’t conform to their view, it is going to be challenging not least with plenty of uncertainty still to follow from Trump’s policies.
As for markets, the dollar has weakened slightly this week with 10-year Treasury yields seemingly stalling at the 4.80% mark. If the numbers today run hotter than estimated, we could see that be enough to tip things over. In turn, that should lead us back to where we left off from last week.
On the flip side though, this is a market that also looks a bit stretched since the FOMC meeting last month. Yields are up roughly 40 bps since then and the dollar has been on a stronger tilt during that period as well.
If not for the latest reports saying that Trump’s team is looking for options to dial back on the stronger tariffs rhetoric, I would say that we should still see a continuation of the recent trend regardless. But now, there is some seed of doubt planted in which market players could use for a potential squeeze/retracement this week.
As things stand, traders are pricing in ~30 bps of rate cuts for the year now. That is down from ~42 bps before the US jobs report last week. So unless we’re considering the possibility of the Fed not cutting rates at all this year, we’re fast approaching the limit of Fed pricing at the moment.