US inflation data will take centre stage tomorrow, with the August CPI report potentially having a major influence on the Federal Reserve’s interest rate decision next week.
Markets are expecting headline CPI to rise 0.4% month-on-month, up sharply from July’s 0.1% increase, with higher energy costs from the war in the Middle East expected to play a significant role.
Annual headline inflation is forecast around 3.4–3.5%. Core CPI, which excludes food and energy and will arguably be the more important number for the Fed, is expected to rise 0.2% on the month, with the annual rate forecast to ease to 2.4% from 2.5%. The release comes at a crucial point for US monetary policy. Recent stronger employment data and Chair Kevin Warsh’s hawkish Jackson Hole message have increased expectations of another rate hike, although Governor Christopher Waller has indicated that further evidence of cooling inflation could support leaving rates unchanged.
This leaves markets particularly sensitive to any deviation from expectations. A core CPI print of 0.3% or higher would likely strengthen expectations for a September hike, pushing Treasury yields and the US dollar higher. Conversely, a softer 0.1% print or lower could significantly increase expectations that the Fed remains on hold, likely seeing both yields and the dollar. With the Fed meeting scheduled for September 15–16, tomorrow’s CPI has the potential to be one of the most market-moving US data releases of recent months.
USDJPY has seen huge moves recently and a surprise result either side should see big figure moves in the pair. It has fallen over 700 pips in just over a week and a stronger print could really put the cat amongst the pigeons with the pair likely to rally strongly against recent flows and government wishes, although traders will be prepared for intervention if it pushes too far. A weaker print will reinforce recent moves with the initial target on the daily chart, the long-term trendline support around 152.00.
Resistance 2: 158.41 – 200 Day Moving Average
Resistance 1: 155.28 – Former Trendline Support
Support 1: 152.08 – 2026 Low and Trendline Support
Support 2: 145.47 – September 2025 Low
