Will the US December CPI data rebound significantly? Gold and the dollar's fate hang in the balance

On the evening of January 13th at 21:30, the US December CPI data will be released. This report comes at a sensitive moment when Powell is under investigation by the Department of Justice and Trump’s tariffs case is imminent, drawing high market attention.

Market Expectations and Institutional Views

According to general consensus, the market expects the December CPI year-over-year to remain at 2.7%, with a monthly increase of 0.3%; the core CPI year-over-year is forecasted to rise from 2.6% to 2.7%, and the monthly rate from 0.2% to 0.3%.

However, Morgan Stanley has provided a more aggressive forecast — the December core CPI will rebound significantly to a monthly increase of 0.36%. The institution points out that this rise is mainly due to statistical distortions caused by the government shutdown, rather than an actual increase in inflation pressure. Federal Reserve officials are well aware of this distortion, so it is unlikely that a single month’s higher data will change the short-term policy direction, and the expectation of no rate cut in January is essentially locked in.

Rate Cut Expectations and Market Response

According to the latest data from the CME FedWatch Tool, investors widely expect the Federal Reserve to initiate its first rate cut in June, with a probability of 68.9%.

It is worth noting that the market’s reaction to CPI data is not simply “the lower, the better.” If the data remains resilient and exceeds expectations, it is likely to be interpreted as statistical distortion and discounted; but if the data weakens below expectations, it will strongly suggest that inflation is indeed cooling. This asymmetric response implies that: surprises to the downside have a greater impact on the market than surprises to the upside.

Two Scenarios for Gold Prices and the US Dollar

This asymmetry directly affects the future performance of gold and the US dollar. If CPI is below expectations, the market will reinforce expectations of rate cuts, which is positive for gold and could even push prices to new highs; if CPI significantly exceeds expectations, it will weaken the rate cut outlook, supporting the US dollar and negatively impacting gold. Mild data in line with expectations may lead to market caution and relatively moderate volatility.

Analysts believe that unless inflation data unexpectedly surges, the current environment remains favorable for gold prices to rise. Investors should closely monitor this key data release tonight.