CPI Report to Decide Fed's Interest Rate Direction

The upcoming US Consumer Price Index (CPI) report on September 11 is expected to have a significant impact on the Federal Reserve's decision-making process, particularly with regards to interest rates. According to market expectations, headline inflation is projected to rise by +0.4% month-over-month and core inflation by +0.2% m/m.

Fed member Christopher Waller recently stated that a cooler CPI would make him inclined to hold rates, while a hot reading could lead him to support a hike. This suggests that the Fed is closely monitoring inflation data and may take action if it indicates a continued rise in prices.

The technical setup of the US Dollar Index (DXY) also hints at a potential turn higher, especially if the CPI report comes in hotter than anticipated. The index has bounced from its 98.50 support level, indicating waning selling pressure and a possible bullish divergence.

Only a surprisingly low reading would cast significant doubt on a rate hike next week, according to market analysts. A hot reading of +0.25% m/m or higher is likely to prompt the Fed to raise interest rates, particularly with September CPI expected to rise amidst ongoing oil price increases.