Fresh U.S. inflation data is set for release today at 16:30 GMT+4, with investors anticipating how the real reading will turn out compared to the expected and previous readings. Forecasts indicate that annual inflation will stabilize at 5%, unchanged from last month’s reading.
The report is one of the most important data points so far this year for the U.S. economy, coming after hints that the Federal Reserve may be ready to put a pause on interest rates, but simultaneously stressing the need for inflation to the Fed’s 2% target.
Markets will therefore remain focused on whether the latest inflation reading really justifies a pause in interest rates or whether the Fed still has more work to do.
Figure 1: U.S. Inflation Data, Source: Bureau of Labor Statistics
Today’s data is expected to bring with it additional volatility to the financial markets, whereby the initial market reaction, regardless of the nature of the real reading, may be sharp and volatile before the market begins to return to stability.
Therefore, it should be noted that individual traders have different ideas and convictions in the way they interpret the information issued, and prices will not always move 100% according to that information.
According to analysts, the data release could play out as follows:
- Reading is higher than the previous and expected (>5.0%)
This could spark fears that inflation is on the rise again, potentially prompting the Fed to continue at a strict pace with interest rate hikes. According to analysts, this would positively affect the U.S. dollar and negatively weigh on stock indices and gold.
- Reading is lower than expected (<5.0%)
This would probably be a convincing reason for the Fed to stop raising interest rates, something which analysts suggest would negatively impact the U.S. dollar, but have a positive effect on stock indices and gold.
- Reading is as expected (5.0%)
This could be the most confusing case for the markets, with larger fluctuations expected before prices take a specific direction.
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