In terms of economic data releases these days, there is none bigger than the US CPI report. And we are going to get that today all before the other important items on the agenda later this week as seen here. The estimates show that headline annual inflation is to fall to 3.1% last month, down from 3.2% in October. Meanwhile, core annual inflation is to hold steady at 4.0% in November.
So, what can we expect from the market reaction?
The important detail to note is that traders have fully priced in the first Fed rate cut for May next year. And there is roughly 111 bps worth of rate cuts currently priced in for the entirety of 2024 already.
If we do see softer inflation numbers, it should reinforce the above pricing. However, we are already perhaps running at maximum capacity here. To shift the pricing from May to March - which is about three months away - is quite a stretch and I don't think we'll see the Fed run such a position especially since they will only be left with two more meetings (today included) to set up a rate cut.
As such, the balance of risks coming into the inflation report today seems to be siding with the opposite reaction. If price pressures remain more persistent and stronger than expected, we should see a further pullback in the above pricing - similar to what we saw after the US jobs report on Friday.
Overall, the moves might not be too impactful as markets are going to have to wait on the Fed tomorrow. I would argue that is the more important risk event for the dollar and risk sentiment this week.
