The US Bureau of Labor Statistics (BLS) will publish January’s Consumer Price Index (CPI) data on Friday, delayed by the brief and partial United States (US) government shutdown. The report is expected to show that inflationary pressures eased modestly but also remained above the Federal Reserve’s (Fed) 2% target.
The monthly CPI is forecast to remain steady at 0.3%, matching the December figure, while the annualized reading is expected at 2.5%, slightly below the 2.7% posted in the previous month. Core readings are expected at 0.3% MoM and 2.5% YoY, little changed from the previous 0.2% and 2.6%, respectively.
Inflation data is critical for Fed officials, although the CPI is not their preferred gauge. Policymakers base their monetary policy decisions on the Personal Consumption Expenditures (PCE) Price Index. Nevertheless, CPI figures are a strong indication of where price pressures are heading and therefore tend to trigger relevant market movements.
What to expect in the next CPI data report?
The anticipated figures are not expected to produce any shock. The CPI has been below 3% since mid-2024, but stubbornly above the desired 2%. The lowest reading in the last two years was 2.3%, posted in April 2025. One might believe that, as long as inflation remains within those parameters, the impact on financial markets will be moderate.
But it is not as simple as that. Indeed, a 2.3% or a 3% print will shake the foundations. The nearer the figure comes to the 2% goal, the higher the chances of a soon-to-come interest rate cut. Conversely, a reading near 3% wouldl dilute the odds for lower rates. That would be easy to interpret if it weren’t for US President Donald Trump’s desire for lower rates and his actions over the last year, which have sought to force policymakers’ hands to the point of calling into question the Fed’s independence.
President Trump has nominated Kevin Warsh as the next Fed Chair, as Jerome Powell’s term ends in May. Powell has refused to reduce interest rates simply because President Trump wants them to. Trump hopes that putting a hawk at the head of the Fed will support his case. Still, if inflation is closer to 3% than 2%, Warsh would have a hard time pleasing Trump.
Meanwhile, a strong Nonfarm Payrolls (NFP) January report adds another factor to the Fed’s picture. The surprise improvement in the employment sector is good news for the Fed, which has lately worried that the labor market had cooled a bit too much. Yet it’s also worth reminding that an overly strong labor market also works against interest rate cuts. A strong reading that followed several weak ones is not a concern. But a couple more strong NFP reports are likely to take their toll on rate moves.
How could the US Consumer Price Index report affect EUR/USD?
Back to the CPI release, market participants will rush to price in the Fed’s potential response to the data as soon as it is released. A reading in line with the market expectations will have no material impact on the USD trend. A yearly reading of 2.4% or below would be considered extremely positive and boost the odds for an interest rate cut, while spurring demand for the USD. On the contrary, a reading of 2.7% or higher will diminish the odds for lower rates and trigger broad USD weakness.
Valeria Bednarik, FXStreet Chief Analyst, notes: “Ahead of the US CPI announcement, the EUR/USD pair consolidates just below the 1.1900 mark. The daily chart shows the positive momentum receded, but also that buyers hold the grip, as the pair continues developing well above all its moving averages, with the 20-day Simple Moving Average (SMA) providing dynamic support in the 1.1820 region. The same chart shows technical indicators remain within positive levels, but are losing their upward slopes. Finally, the pair has retreated for three consecutive days on approaches to the 1.1930 level, converting the area into a relevant resistance zone.”
Bednarik adds: “A clear advance beyond 1.1930 should result in a test of the 1.1980 level, en route to the recent multi-year high at 1.2082. On the other hand, a clear breach of the 1.1800-20 price zone should open the door to a steeper decline, initially targeting 1.1760 and heading towards the 1.1700 threshold.”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Economic Indicator
Consumer Price Index ex Food & Energy (MoM)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM print compares the prices of goods in the reference month to the previous month.The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
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