The US Bureau of Labor Statistics is set to release the May Consumer Price Index (CPI) data, with expectations pointing to an acceleration in headline inflation driven by persistently high oil prices resulting from the ongoing Middle East crisis [1][2]. The monthly CPI is forecast to rise by 0.5%, following a 0.6% increase in April, while the annual headline CPI is anticipated to reach 4.2%, up from 3.8% in April, marking the highest level since May 2023 [1][2]. Core CPI, which excludes food and energy, is expected to increase by 0.3% month-on-month and 2.9% year-on-year, compared to 2.8% in April [1][2]. Crude oil prices have surged more than 50% since the conflict began on February 28, and recent escalations between Israel and Iran have kept West Texas Intermediate (WTI) prices elevated [1].
TD Securities analysts previewed the inflation data, noting that core CPI inflation may take a breather in May after a shelter-led jump in April, with services price normalization expected to offset a small pickup in goods inflation. However, energy prices remain firm due to the continued impact of high oil prices [1]. The upcoming CPI figures are seen as crucial for gauging how rising energy costs are affecting broader consumer inflation. A monthly core CPI reading above the expected 0.3% could heighten concerns about entrenched inflation, while a lower print may ease fears, though investors remain cautious until oil prices return to pre-war levels [1].
In currency markets, the EUR/USD pair is trading in a tight range around 1.1545 ahead of the US CPI release, with the US Dollar Index (DXY) holding steady near 99.96 [2]. Investors are closely watching the inflation data for signals regarding the Federal Reserve's monetary policy outlook [2]. Technical analysis indicates a bearish near-term tone for EUR/USD, as the pair remains below the 20-period Exponential Moving Average at 1.1611 and the Relative Strength Index at 37.9 suggests persistent downside pressure [2]. Key support is noted at 1.1502, with further downside risk to the March 13 low at 1.1411 if the pair fails to hold above the rising trend line [2].
Meanwhile, in the Eurozone, investors are awaiting the European Central Bank's (ECB) monetary policy decision, expected on Thursday. The ECB is anticipated to raise its key borrowing rates by 25 basis points and deliver hawkish guidance, responding to inflationary pressures from elevated energy prices [2]. The rate on the deposit facility is expected to increase from 2% to 2.25% [2].
CONCLUSION
The US CPI report is expected to show a notable acceleration in inflation, largely attributed to high oil prices, which has kept markets on edge regarding the Federal Reserve's policy direction. The EUR/USD pair remains flat ahead of the data, reflecting investor caution. Both US and Eurozone inflation trends are driving significant market attention, with high oil prices and central bank decisions poised to impact currency and broader financial markets.