The US Bureau of Labor Statistics (BLS) will publish the important consumer price index (CPI) figures for November on Thursday at 13:30 GMT.

The inflation report will not include CPI figures for October and will not provide monthly CPI figures for November due to a lack of data collection during the government shutdown. Therefore, investors will scrutinize annual CPI and core CPI to assess how inflation dynamics may impact the Federal Reserve's (Fed) policy outlook.

What to expect in the next CPI report?

Measured by the change in CPI, U.S. inflation is expected to rise at an annual rate of 3.1% in November, higher than the level in September. Core CPI inflation, which excludes the more volatile food and energy categories, is also expected to increase by 3% during this period.

Analysts from TD Securities expect annual inflation to rise faster than previously anticipated, but see core inflation remaining stable.

"We expect U.S. CPI to rise 3.2% year-on-year in November – the fastest rate since 2024. The increase will be driven by rising energy prices, as we expect core CPI to remain stable at 3.0%," they explain.

How can the U.S. Consumer Price Index report affect the U.S. dollar?

Investors see nearly a 20% probability of a new 25-basis-point Fed rate cut in January following Thursday's inflation update, according to the CME FedWatch Tool.

BLS's delayed official employment report showed Tuesday that Nonfarm Payrolls fell by 105,000 in October and increased by 64,000 in November. Additionally, the unemployment rate rose to 4.6% from 4.4% in September. These figures failed to alter the market's pricing of the January Fed decision, as the sharp drop in employment in October was not surprising given the loss of public sector jobs during the shutdown.

In a blog post published late Tuesday, Atlanta Fed President Raphael Bostic argued that the mixed employment report did not alter the outlook for monetary policy and added that there are "several indicators" suggesting higher input costs, with companies seeking to maintain margins by raising prices.

A clear increase, with a headline annual CPI inflation rate of 3.3% or higher, could confirm that the Fed holds rates in January and provide an immediate boost to the U.S. Dollar (USD). On the other hand, a weak annual inflation rate of 2.8% or lower could lead market participants to favor a Fed rate cut in January. In such a scenario, USD could face strong selling pressure immediately.

Eren Sengezer, analyst for the European session at FXStreet, provides a brief technical assessment of the U.S. Dollar Index (DXY) and explains:

"The short-term technical outlook suggests the bearish trend remains intact for the USD Index, but there are signs that negative momentum is diminishing. The Relative Strength Index (RSI) on the daily chart is recovering above 40, and the USD Index is holding above the 50% Fibonacci retracement level from the September-November rally."

"The 100-day Simple Moving Average (SMA) is a pivotal level at 98.60. If the USD Index rises above this level and confirms it as support, technical sellers may be discouraged. In this scenario, the 38.2% Fibonacci retracement could act as the next resistance level at 98.85, ahead of the 99.25–99.40 zone where the 200-day SMA and the 23.6% Fibonacci retracement are located."

"On the downside, the 61.8% Fibonacci retracement is a key support level at 98.00, followed by 97.40 (78.6% Fibonacci retracement) and 97.00 (rounded level)."