US CPI report the key highlight in the day ahead ...Middle East

First, let's take a look at the estimates.

Headline monthly inflation: +0.3% (prior +0.1%)Headline annual inflation: +2.7% (prior +2.4%)Core monthly inflation: +0.3% (prior +0.1%)Core annual inflation: +3.0% (prior +2.8%)

That might create a bit of a distortion if the tariffs impact are yet to materialise. In other words, it creates a false sense of confidence that inflation pressures are holding even as Trump is continuing his tariffs crusade.

Goldman Sachs notes that it is "not too surprising that tariff effects have not shown up strongly in official consumer prices yet". Adding that "many tariffs only began to have an impact around early May" while importers were also allowed to "use automatic payment transfer system to delay their tariff payments for up to 1.5 months".

In the meantime though, the report today will be one that markets will use to size up a rate cut in September. But even then, it might still be a bit too early to say. As for a July move, the numbers we'll be getting are unlikely to move the needle on that.

As such, a July move should continue to be ruled out regardless. That despite the likelihood that Trump is going to keep lambasting Powell in the aftermath of the data here and in the month(s) to come.

The question then would be, will the Fed push back on the market pricing in wanting to wait for the July report next month? That will be a key consideration for markets not to take things too far as we are perhaps yet to see the real impact from tariffs show up.

This article was written by Justin Low at www.forexlive.com.

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