US inflation data is set for release today at 16:30 GMT+4 as markets anticipate how the real reading will compare to both the expected and previous readings. Forecasts indicate that annual inflation will continue to slow down for the ninth consecutive month to 5.2%, compared to the previous 6.0% figure. This would be its lowest reading in around two years.
Still, the Fed continues to stress the need for inflation to return back toward its 2% target, also making it clear that its upcoming monetary policy decisions will depend on the economic data. Markets will therefore be focusing on whether today’s inflation reading indicates further optimism and justifies an end to the Fed’s interest rate hikes, or whether the central bank has more work to do.
The release of today’s CPI inflation data will most likely be accompanied by fluctuations in the financial markets. The initial market reaction, regardless of the nature of the real reading, may be highly volatile upon release before the market returns to stability.
The expected scenarios are as follows:
- Reading is higher than the previous reading (6.0%)
This would translate into fears of resurging inflation again, potentially pushing the Fed to continue interest rate hikes at a strict pace. According to analysts, this could positively affect the US dollar and negatively weigh on stocks and gold.
- Reading is at or below expected (5.2%):
Perhaps this will convince the Fed to halt the pace of interest rate hikes, something that could negatively affect the dollar and positively impact stocks and gold, according to analysts.
- Reading is between the expected and previous (between 5.2% and 6.0%):
This will be the most confusing situation for markets, potentially leading to additional volatility before prices take a specific direction.
It is important to note that traders have different ideas and convictions in the way they interpret the information issued, and therefore prices cannot move 100% according to that information, while the expected scenarios will be as follows:
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