Another downtick in the U.S. Consumer Price Index (CPI) may spur a rebound in EUR/USD as the Federal Open Market Committee (FOMC) appears to be scaling back its hawkish outlook for monetary policy.

Why Is This Event Important:

Even though U.S. Retail Sales are projected to increase in June, the prepared remarks for the Humphrey-Hawkins testimony appears to have rattled interest-rate expectations as market participants scale back bets for a December rate-hike. Signs of subdued price pressures may spark a bearish reaction in the greenback, and the Federal Open Market Committee (FOMC) may largely endorse a wait-and-see approach at the next rate decision on July 26 as Chair Yellen warns ‘inflation continues to run below our 2 percent objective and has declined recently.’

Nevertheless, a positive development may push the FOMC to implement a more aggressive approach in normalizing monetary policy amid the growing discussion to unload the balance sheet.

Impact that the U.S. CPI report has had on EUR/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY

2017

06/14/2017 12:30:00 GMT

2.0%

1.9%

+67

+15

May 2017 U.S. Consumer Price Index (CPI)

EUR/USD 5-Minute

The U.S. Consumer Price Index (CPI) weakened for the third straight month in May, with the headline reading slipping to an annualized 1.9% from 2.2% in April. At the same time, the core reading unexpectedly narrowed to 1.7% per annum during the same period to mark the slowest pace of growth since May 2015, and signs of subdued price pressures may encourage the Fed to buy more time as the central bank struggles to achieve the 2% target for inflation. The U.S. dollar lost ground following the dismal CPI report, with EUR/USD clearing the 1.1250 zone, but the market reaction as short-lived as the pair closed the day at 1.1218.