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Resolved Question
What does CPI stand for?
I know it’s the ‘Consumer Price Index’—but what I mean is: how can this data affect the currency market?
over 2 years ago
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The CPI measures inflation (a sustained rise in prices in an economy) as experienced by consumers. As such, it is used by retailers in predicting future price increases, by employers in calculating salaries and by the government in determining cost-of-living increases for Social Security. Signs of inflation means the central bank has to raise interest rates. Thus, if CPI is increasing, then it gives a central bank such as the Fed the necessary supportive data to hike rates. Higher interest rates are bullish for the country's currency.
over 2 years ago
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This data affects the currency markets as it is indicative of overall inflation. When consumer prices rise, it signals that inflation is rising as well. The central bank then reacts by rising their interest rates in order to counter this in order to keep inflation within its targets. Conversely, when consumer prices are falling, it signals that inflation is falling. If it falls below target and is heading towards negative, central banks may cut rates in order to combat this. Why is this important to traders? Well, interest rates also have an affect on the valuation of a currency. High interest rates may make assets from the host country more attractive, which causes demand for that currency to rise. The opposite happens when interest rates are low. I hope this helps you understand a little more! :)
over 2 years ago
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CPI determines the amount of the commodities purchased by consumers. It also measures the average changes in the retail prices of goods purchased for daily consumption. Furthermore, CPI usually gives a hint on the future changes of FED’s rates, thus investors always keep a closer look on analyzing CPI.
over 2 years ago
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CPI measures the change in the price of a basket of goods and services. Every central bank sets a particular inflation target. If the CPI falls below its target, the bank may increase the money supply and/or cut the rate to spur demand. On the other, if prices go above the bank's target, the bank may reduce the money supply and/or hike the rates. Any increase in the money supply and rate reductions are generally bearish for any currency. Conversely, any reduction in the money supply and hikes in the rate are usually bullish for any currency.
over 2 years ago
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