US CPI Data Expected to Reveal Moderate Inflation Amid Tariff Impact Evaluation

• Anticipation grows as the US Consumer Price Index (CPI) is projected to increase by 2.5% YoY in May, marking a more robust growth compared to April.
• Forecasts suggest a slight rise in annual core CPI inflation to 2.9%.
• The upcoming May inflation figures could significantly influence the Federal Reserve’s monetary policy, potentially impacting the US Dollar.

The Consumer Price Index (CPI) for May is anticipated to show a surge in US inflation rates. Market participants are keen to assess how recent tariff adjustments under US President Donald Trump might be influencing inflationary pressures, which could alter the Federal Reserve’s approach to monetary policy.

The US Bureau of Labor Statistics is scheduled to release the CPI data for May on Wednesday at 12:30 GMT. This release is expected to immediately affect the valuation of the US Dollar (USD).

What to expect from the forthcoming CPI data release?

The CPI in the US for May is predicted to climb by 2.5% on a year-over-year basis, a noticeable increase from April’s 2.3% rise. The core CPI, which excludes the more volatile food and energy sectors, is also expected to increase by 2.9% YoY, up from 2.8% the previous month.

Month-over-month, both the CPI and core CPI are projected to increase by 0.2% and 0.3%, respectively.

Analysts from TD Securities provide insights, noting: “Core CPI inflation is likely to remain steady in May, with a predicted 0.23% month-over-month increase. We anticipate that subdued travel service costs will help moderate the index, as early signs of tariff impacts begin to surface.”

“We expect a slight slowdown in headline CPI inflation due to a significant drop in gas prices, forecasting both headline and core CPI inflation at 2.4% and 2.9% year-over-year, respectively,” they added.

How could the US Consumer Price Index report affect EUR/USD?

The May inflation data is poised to play a crucial role in shaping market expectations regarding the Federal Reserve’s rate decisions, which could influence the short-term trajectory of the USD. Following the Fed’s decision to maintain the federal funds rate between 4.25% and 4.50% during its May meeting, comments from Fed officials suggested a cautious approach to policy adjustments, contingent on significant changes in the labor market outlook.

Recent US employment data exceeded expectations, with Nonfarm Payrolls increasing by 139,000 in May, which was higher than the anticipated 130,000. This robust employment growth led to a decrease in the likelihood of a Fed rate cut in July, as indicated by the CME Group FedWatch Tool.

A higher-than-expected core CPI result could strengthen the USD by reinforcing expectations of limited Fed rate cuts this year. Conversely, a core CPI outcome below 0.2% might alleviate concerns about persistent inflation in the latter half of the year due to tariffs, potentially weakening the USD. In such a scenario, EUR/USD might experience an uptick.

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a brief technical analysis for EUR/USD:

“The Relative Strength Index (RSI) on the daily chart remains above 50, indicating a continued bullish bias, although the momentum appears to be stalling. Immediate resistance is found at 1.1575, with further key levels at 1.1700 and 1.1860. On the downside, initial support is at the 20-day Simple Moving Average (SMA) of 1.1320, followed by 1.1250 and 1.1060.”