US inflation data is set for release on Thursday at 4:30 pm Dubai time, and markets are waiting to see how the real reading will turn out compared to the expected and previous reading. Expectations indicate that annual inflation will decline by around 3.6% compared to the previous reading of 3.7%. This indicates that inflation has slowed after rising for the second consecutive month.
This reading is considered one of the most important for markets, given that it comes after the Fed emphasized the need to bring inflation back towards its target levels of 2%. The markets will therefore focus on whether the inflation reading shows optimism, becoming a justification to halt the Fed’s interest rate hikes, or whether the reading will justify further policy tightening.
Therefore, when reading the inflation data expectations, traders should balance the opportunities for the Fed to continue tightening the pace of raising interest rates and calming this pace, given that the Fed relies on this inflation data when making any interest rate decisions.
The expected scenarios are outlined as follows:
Scenario 1: A higher reading than the previous reading (3.7%)
This means that inflation is still rooted in the economy and has risen for the third consecutive month. This could push the Fed to continue with a stricter pace of interest rate hikes, and could therefore create a positive environment for the dollar, while negatively pushing down stocks, indices, and gold - as suggested by analysts.
Scenario 2: A reading at or below expected (3.6%)
This may be a convincing reason for the Fed to stabilize interest rates at current levels, a fact which could be negative for the dollar, but positive for stocks, indices, and gold.
Remember that traders have different ideas and beliefs in the way they interpret the information issued, and therefore prices cannot move 100% according to that information.
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