A1 Trading Company

Ticker tape by TradingView

May 10, 2021

How Does the CPI Affect a Currency?

Theo Ashley-Hacker

What is the CPI?

The CPI or Consumer Price Index is a figure released monthly that measures the average change in a basket of goods in an economy, its used to measure inflation and is a key figure used by central banks around the world that influences monetary policy decisions such as interest rates.

What can we Expect on Wednesday?

Economists forecast the figure to at 0.2%. However like last month, its likely to be higher than this as more people get vaccinated and the economy continues to open up. Hourly earnings coming out last week higher than expected is also important as employees are often paid more when the companies are charging more for their products. When people are being paid more they also have more spend more increases inflation.

What affect does it have on the currency?

Its a commonly misunderstood that higher than expected CPI devalues a currency, and this would make sense, right? As inflation occurs and as prices rise, they become less competitive internationally and the currency becomes less sought after. There is however another side to this.

Investors often perceive higher than expected CPI figures to be bullish. This is as central banks set an inflation target which they aim to keep low and steady. If figures come out considerably higher than their target, they may look to adjust interest rates. Higher interest rates would mean people are less likely to spend money as borrowing becomes more expensive and saving more lucrative. This aims to decrease spending and inflation accordingly. Higher Interest rates increase demand for a currency as people look to move their money where they can get the highest returns before likeminded people drive the price up in anticipation of higher interest rates.

Likewise, lower than expected CPI figures can be bearish as central banks may look to lower interest rates to stimulate consumer spending and demand in the economy.

Conclusion

The Consumer Price Index is one of the most anticipated economical indicators as it gives a good all round idea of the state of the economy, it has the the potential to benefit a currency but only if investors believe that the figures are off enough that central banks may consider policy changes as a result, but not off by so much that it can affect confidence in the economy..

A1 Edgefinder

Smart Money Tracker
See where big money is flowing with the A1 Edgefinder's smart money tracker! With one click, see where the biggest money flows are entering and exiting through COT data.

10% off code: 'READER'

GET ACCESS NOW

VIP discord

Trade Alerts, Strategies, Chatrooms & more!

10% off code: 'READER'

LEARN MORE
What To Take Away From Powell's Remarks

Today, Fed chairman Jerome Powell spoke on the labor market and inflation. While we don't know what the future holds for the equities and currency market, we can derive certain conclusions from investors' interpretations. Here are some powerful takeaways from Powell's remarks this afternoon. Key takeaways Market Impact This caused the dollar and equities to […]

Read More
What To Expect From Today's FOMC

Today at 2:00 pm EST, the Fed will announce their latest interest rate decision. Estimates suggest a smaller hike of 25 basis points this time around. Here are some things to consider before the FOMC decision later today: The Fed has struggled to tighten their grip on inflation without causing too much disturbance in the […]

Read More
The Art of Not Trading

With the holiday season lingering on and a new year on the cusp of arrival, traders may glance at the calendar and notice there is not much economic news to anticipate on Friday to cap off a light week. In situations like these where there can be lulls in bullish and bearish momentum due to […]

Read More
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here
Home
Edgefinder
VIP
Menu
homesmartphonelaptopmenu linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram