USA consumer price report is ranked as an important monthly measurement used to forecast upcoming monetary policy trends. The USA consumer price index is announced monthly and it encounters the prices of specific products. The final goods and services that are used to measure the consumer price index are termed as consumer basket. The consumer price index tends to portray comparative price levels of specific goods and services. The monthly announced American consumer price reports have definite impact over the FOREX trade and currency value. American consumer price report not only predicts the future monetary policy but it also forecasts its future inflation trends. Federal Reserve Bank of America monitors the consumer price report and the Federal Reserve Bank is very conscious about the varying trends of inflation. Contrary to other central banks like European Central Bank the Federal Reserve Bank also analyzes the unemployment rate in the country and in response formulates the required policies.
As the consumer price reports calculates the variation in price levels of consumer basket products and services by measuring the monetary value of total services and total goods purchased by consumers within a given period of time. Therefore we can easily conclude that the consumer price reports can be regarded as reliable inflation predictors. As we all know that the USA government has already set yearly inflation targets, therefore, if in case consumer price reports that are prepared monthly depicts contradictory situation to the targeted inflation, the Federal Reserve Bank of America shows its concern. In order to reduce the expected inflation increase the Federal Reserve Bank can use different tools like increased interest rate. Whether to increase the interest rate or decrease it, is decided by Federal Open Market Committee. The Federal Open Market Committee also decides either to introduce Quantitative Easing Programs or not.
In terms of FOREX trading, when the traders realize that monthly consumer price index is greater than the targeted inflation they tend to be very active. In this situation bullish trend on the currency rate i.e. Dollar rate is observed. The currency market continuously monitors the CPI changes and they tend to emphasize importance on the consumer price reports. Therefore we can conclude that the American consumer price index or reports can be traded in currency market. The trade can only take place if there is a huge difference between the expected or targeted results and actual monthly published results.