Can U.S. CPI Data Boost Rate Hike Forecasts Much Further?

The Federal Reserve’s hawkish outlook and the rate hikes are very well priced in by the market, so what we now see in both pairs EUR/USD and GBP/USD is a risk-on-mode amid extremely quiet trading conditions.

The EUR/USD remained stuck in a small range between 1.1390 and 1.1270 over the last 40 days. We see potential for a test of the 1.1420-area but recall the pair’s overbought situation.

The cable extended its upward movement and broke above 1.36. A next hurdle comes in at 1.3670 which could attract sellers.

Traders’ next focus is the U.S. CPI report scheduled for release today at 13:30 UTC. The headline inflation is expected at 7.0 percent y/y in December and core at 5.4 percent. These would be the highest readings in 30-40 years. Since faster Fed rate hikes are already priced in, it remains to be seen whether today’s data can boost forecast much further.

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