USD exchange rates might react to CPI surprise in an unusual manner – Commerzbank

The publication of the May inflation data by the Bureau of Labor Statistics is expected for the US today. Monthly prices are projected to rise 0.7%, more than double their 0.3% gain in April. The US dollar might react to any deviation from the forecast in an unusual manner, economists at Commerzbank report.

Risk of hard landing is the most relevant USD-dampening factor

“If the result is anything between +0.6% and +0.8%, that is likely to be within the market’s expectations. If it is much less, in conjunction with the low April result, that might be interpreted as a trend reversal by some observers.”

“The risk of a hard landing is likely to be the most relevant USD-dampening factor at present. It is difficult for anyone to imagine (a) that inflation pressure will ease on its own accord and how (b) the Fed is to stop inflation without a ‘hard landing’. Anything that then smells of inflation pressures easing, after all, is positive.”

“There is a chance that USD exchange rates might react to surprises in an unusual manner.”

See – US CPI Preview: Forecasts from eight major banks, inflation peaked but faces challenges to moderate