The financial markets are set to scrutinize the latest Consumer Price Index (CPI) report, which is anticipated to reveal a 2.9% annual increase in January, mirroring the previous month’s figures. Scheduled for release at 1330 GMT, the report is expected to demonstrate a 0.3% rise in headline CPI from last month. Despite the stable annual headline rate, core CPI is projected to remain above the Federal Reserve's target, at 3.1% compared to a year ago. This development comes amid a backdrop of mixed economic signals and comments from Federal Reserve officials urging caution.
Market analysts are keenly observing the stability in core price growth, which is predicted to slightly moderate to 3.1% from December's 3.2%. The economic indicators leading up to this report have painted a mixed picture. Wage data for the previous month exceeded expectations, suggesting potential upward pressure on inflation. However, the Service sector ISM prices paid index dropped significantly, from 64.4 to 60.4, reversing December's unexpected spike in prices paid.
Federal Reserve President of New York, John Williams, articulated a cautious stance, emphasizing the need for rate setters in the US to await further economic data before altering monetary policy. His comments align with those of Fed Chair Jerome Powell, who highlighted challenges in reducing interest rates amid a robust economy and persistently high inflation.
The financial markets responded swiftly to these developments. Overnight hawkish remarks from Fed Chair Powell spurred demand for the US dollar, affecting various currency pairs. Historically, the USD/JPY pair tends to decline more often than rise during CPI releases over the past year. Meanwhile, gold prices have shown limited average movement following CPI announcements, though they have occasionally reacted strongly when inflation figures exceeded expectations.
In the broader market context, a reduction in price pressures could invigorate risk assets and potentially trigger a more extensive rally in US stock markets. However, investors remain cautious due to geopolitical factors, such as US President Trump's plans for reciprocal tariffs through executive action, which have bolstered the US dollar ahead of the inflation report.
Gold prices have encountered resistance around $2,900, presenting challenges for breaking through this level. Currently, gold prices are trending lower, adding to market participants' cautious sentiment.