US Consumer Price Index set to post a modest decline in January

The US Bureau of Labor Statistics (BLS) will publish January’s Consumer Price Index (CPI) data on Friday, delayed by the brief and partial United States (US) government shutdown. The report is expected to show that inflationary pressures eased modestly but also remained above the Federal Reserve’s (Fed) 2% target. 

The monthly CPI is forecast to remain steady at 0.3%, matching the December figure, while the annualized reading is expected at 2.5%, slightly below the 2.7% posted in the previous month. Core readings are expected at 0.3% MoM and 2.5% YoY, little changed from the previous 0.2% and 2.6%, respectively. 

Inflation data is critical for Fed officials, although the CPI is not their preferred gauge. Policymakers base their monetary policy decisions on the Personal Consumption Expenditures (PCE) Price Index. Nevertheless, CPI figures are a strong indication of where price pressures are heading and therefore tend to trigger relevant market movements. 

What to expect in the next CPI data report?

The anticipated figures are not expected to produce any shock. The CPI has been below 3% since mid-2024, but stubbornly above the desired 2%. The lowest reading in the last two years was 2.3%, posted in April 2025. One might believe that, as long as inflation remains within those parameters, the impact on financial markets will be moderate.

But it is not as simple as that. Indeed, a 2.3% or a 3% print will shake the foundations. The nearer the figure comes to the 2% goal, the higher the chances of a soon-to-come interest rate cut. Conversely, a reading near 3% wouldl dilute the odds for lower rates. That would be easy to interpret if it weren’t for US President Donald Trump’s desire for lower rates and his actions over the last year, which have sought to force policymakers’ hands to the point of calling into question the Fed’s independence.

President Trump has nominated Kevin Warsh as the next Fed Chair, as Jerome Powell’s term ends in May. Powell has refused to reduce interest rates simply because President Trump wants them to. Trump hopes that putting a hawk at the head of the Fed will support his case. Still, if inflation is closer to 3% than 2%, Warsh would have a hard time pleasing Trump. 

Meanwhile, a strong Nonfarm Payrolls (NFP) January report adds another factor to the Fed’s picture. The surprise improvement in the employment sector is good news for the Fed, which has lately worried that the labor market had cooled a bit too much. Yet it’s also worth reminding that an overly strong labor market also works against interest rate cuts. A strong reading that followed several weak ones is not a concern. But a couple more strong NFP reports are likely to take their toll on rate moves. 

How could the US Consumer Price Index report affect EUR/USD?

Back to the CPI release, market participants will rush to price in the Fed’s potential response to the data as soon as it is released. A reading in line with the market expectations will have no material impact on the USD trend. A yearly reading of 2.4% or below would be considered extremely positive and boost the odds for an interest rate cut, while spurring demand for the USD. On the contrary, a reading of 2.7% or higher will diminish the odds for lower rates and trigger broad USD weakness.

Valeria Bednarik, FXStreet Chief Analyst, notes: “Ahead of the US CPI announcement, the EUR/USD pair consolidates just below the 1.1900 mark. The daily chart shows the positive momentum receded, but also that buyers hold the grip, as the pair continues developing well above all its moving averages, with the 20-day Simple Moving Average (SMA) providing dynamic support in the 1.1820 region. The same chart shows technical indicators remain within positive levels, but are losing their upward slopes. Finally, the pair has retreated for three consecutive days on approaches to the 1.1930 level, converting the area into a relevant resistance zone.”

Bednarik adds: “A clear advance beyond 1.1930 should result in a test of the 1.1980 level, en route to the recent multi-year high at 1.2082. On the other hand, a clear breach of the 1.1800-20 price zone should open the door to a steeper decline, initially targeting 1.1760 and heading towards the 1.1700 threshold.”