USD to reverse back lower on a big downside surprise in CPI report – MUFG

Markets remain calm ahead of Wednesday's US inflation data. A big downside surprise would be required to fuel a more meaningful reversal of US dollar strength, in the opinion of economists at MUFG Bank.

Inflation relief ahead of key inflation data tomorrow

“The New York Fed’s Survey of Consumer Expectations revealed a drop in the 3-year measure from 3.6% to 3.2% while over a 1-year period, the measure dropped from 6.8% to 6.2%. The 3-year drop certainly looks more compelling at this stage.”

“Today could well be a day of consolidation ahead of the CPI data tomorrow.”

“Given the Fed comments over the weekend and the rally in equities and some tentative signs of commodities recovering, we feel a big downside surprise would be required tomorrow to fuel a more meaningful reversal of US dollar strength – something that seems very unlikely at this juncture.”