Octa’s Research: Inflation in the U.S. Is Cooling Down Slightly

The annual inflation rate in the U.S. eased to 3.4% in April 2024 from 3.5% in March, which had been the highest reading since September, aligning with market forecasts. Core CPI, which excludes food and energy prices, rose by 0.3% in April after increasing by 0.4% each month in the first quarter. Year-over-year, core CPI was up 3.6%, down from 3.8% in March, being at the lowest level since the first half of 2021. April’s CPI report was received warmly by the Federal Reserve. Still, after the upside surprises in the first quarter, policymakers will need to see more months of encouraging disinflation before considering loosening policy.

On 3 June, data revealed that the U.S. Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) dropped to 48.7 in May from 49.2 in April, continuing its decline from an 18-month high of 50.3 in March. This ISM decrease followed similar weaknesses in the Chicago PMI, Dallas Fed, Philadelphia Fed, and Empire State manufacturing indices. ‘The U.S. economy is showing signs of slowing down, putting additional pressure on Fed officials. Despite the slow pace of inflation reduction, high interest rates cannot be maintained for too long’, said Kar Yong Ang, broker’s financial market analyst.

Market participants expect inflation to continue slowing in May, with projections for CPI to rise by 0.2% for the month. With consumer inflation in the U.S. starting to slow, the probability of interest rate cuts is increasing, putting more bearish pressure on the U.S. dollar. For currency traders, this means that the bullish trend in EURUSD may continue for a few days after the publication of inflation data, and the pair may target 1.09100–1.09400.

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