US CPI: Market to be swayed more by a downside miss in the data than an upside surprise – Scotiabank

USD edges slightly lower ahead of March Consumer Price Index (CPI) data and FOMC minutes. A downside surprise poses more risks than a strong print, economists at Scotiabank report.

Broader downtrend in the USD Index remains very much in play

“The DXY has steadied over the past week or so but the broader downtrend in the index remains very much in play and shows little sign of relenting.”

“Markets are anticipating a further – perhaps significant – decline in headline inflation for the Mar year but core price growth is likely to remain stubborn (unchanged at 5.6% YoY from Feb). Risks around the data are probably somewhat asymmetrical for the USD in that market sentiment is likely to be swayed more by a downside miss in the data than an upside surprise, given that swaps are pricing in around 75% risk of a 25 bps Fed hike at the May FOMC.” 

“The minutes for the Mar 22 policy decision might give some signs of how concerned policymakers are about credit tightening in the wake of the regional bank tensions that played out last month around their decision to tighten.”

See – US CPI: Banks Preview, inflation softening, good news on the horizon?