In the US attention will today focus on consumer prices. Most recently macro data from the US had signalled that the weakness in Q1 really was due to special effects. That means economic concerns amongst market participants should have eased notably. Therefore attention will increasingly focus on inflation again, as price pressure is likely to be one of the last reasons to prevent the Fed from hiking rates. Consensus expects a rise of 0.1 mom for this afternoon.
"The expectation for the yoy rate is to ease to -0.2%. However, this is not yet a case of real deflation, as the core rate is likely to record a rise of 0.2% mom. That would still result in 1.7% yoy", expects Commerzbank.
The Fed does not use consumer prices directly but instead relies on the deflator of private consumption (a slightly broader basket), but the affair is nonetheless likely to be clear-cut for the market: the higher the prices, the more likely are rate hikes, the better for USD.
