In European trading, the dollar is slightly lower as all eyes are on the upcoming US CPI report. Analysts have different predictions for the core CPI: – BofA: 0.25% m/m – Goldman Sachs: 0.23% m/m – Citi: 0.22% m/m – JP Morgan: 0.29% m/m – Wells Fargo: 0.24% m/m – Barclays: 0.23% m/m – Deutsche: 0.32% m/m BofA thinks prices will rise faster, while Goldman Sachs considers the impact of tariffs. Citi believes that tariffs won’t significantly affect consumer prices. JP Morgan expects goods prices to reflect tariff pressures. Wells Fargo sees a steady increase in core prices for goods and services. Barclays predicts modest price influences with limited tariff effects. Deutsche is focused on tariff impacts on core goods.

Core Price Estimates Overview

Core price estimates also vary: – BofA: 0.22% m/m – Goldman: 0.25% m/m – Citi: 0.24% m/m – JP Morgan: sector-specific impacts noted – Barclays: 0.25% m/m – Deutsche: 0.32% m/m Analysts suggest that tariffs could impact inflation figures, which in turn could affect economic policy. The exact decimal point is crucial, as it can influence assessments. The debate around a core CPI between 0.2% and 0.3% is where traders see opportunities. This discussion isn’t just theoretical; it could significantly shape Federal Reserve policy and could lead to increased market volatility. A lower print supports dovish views, while a higher one favors hawkish stances, signaling a sharp market move either way. Given this scenario, we should consider what it means for interest rate expectations. Currently, the CME’s FedWatch Tool shows a 58% chance of a September rate cut. However, if the figure hits 0.3% or more—especially the 0.32% forecasted—it could drop those odds to around 30% quite rapidly. The best move is to focus on SOFR options or Fed Funds futures for a hawkish adjustment. Conversely, a lower print like what Citi predicts could boost cut expectations to 80-90%, justifying bets on a dovish outcome. This situation isn’t occurring in isolation. The recent Producer Price Index for July showed a higher-than-expected 0.3% monthly gain, aligning with the more aggressive CPI estimates from teams like JP Morgan. This suggests that tariff pressures are already affecting prices. It serves as a warning that we might see an inflationary surprise.

Implications For Equity Traders

For equity traders, this means increased volatility. The VIX index, currently around a calm 14, has a steep short-term structure. Options set to expire right after the CPI release are priced higher due to potential event risk. We believe buying longer-term volatility is a smarter strategy. A high CPI reading won’t just affect one day; as analysts at Goldman predict, it could lead to several months of stubborn inflation, keeping the Fed on hold and uncertainty high for the rest of the year. Historically, a strong CPI reading can boost the dollar. Looking back at 2022, we saw how quickly a hawkish Fed could raise the DXY index by 2-3%. If the inflation narrative pushed by Morgan’s analysts takes hold with a high print, the Fed may have to stay firm. This situation makes it wise to position for a stronger dollar against rate-sensitive currencies like the Japanese yen or the Swiss franc as a response to a hawkish surprise. Create your live VT Markets account and start trading now.

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