US CPI risks skewed to upside for USD – MUFG

The rebound for the Dollar has been relatively muted still. But economists at MUFG Bank expect a strong US Consumer Price Index (CPI) report to trigger a Dollar rally.

How the US equity market reacts to inflation data will be key for the Dollar

“The DXY is very close to the closing level from 3rd February and has barely advanced at all since. The lack of follow-through for the USD in part reflects the resilience of US equity markets and the reaction of the S&P 500 to today’s inflation print will be important as well. We would assume a stronger than expected CPI data today would prompt that resilience to give way more clearly as the rates market moves to price an additional 25 bps rate hike beyond May.”

“We certainly see a stronger CPI print as more disruptive for risk and that could be the catalyst for a more pronounced rally back for the Dollar than what we have seen since the initial reaction on 3rd February.”