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US Inflation Surprise? Dollar & Markets Brace for Key Data

INVESTINGUS Inflation Surprise? Dollar & Markets Brace for Key Data

Today’s main event for the market will be the publication of inflation figures in the USA for February. No doubt, the dollar will react to the data, and the scale of changes in the foreign exchange market will depend on the size of the surprise, if we get one at all. The exchange rate of the main currency pair, after reaching a local peak at 1.0980 on Friday, is now below that level but still above 1.09. Wall Street responded indecisively yesterday. Both the Nasdaq Composite and the SP500 fell slightly while the Dow Jones edged up a little. Gold, after reaching a new record before the weekend, is currently consolidating.

In recent months, it seemed that disinflation was somewhat stuck in a dead-end. Of course, the annual rates were still falling, though not as fast as a few months ago. The base rate will likely continue to drop, but the speed will not be as impressive as in 2023.

More importantly, the monthly indicators of change recently show a rising trend. Forecasts suggest that the CPI will increase from 0.3% to 0.4%, while the base is expected to reduce slightly from 0.4% to 0.3%. In the annual assessment, the market consensus indicates a stabilization of the main measure at around 3.1% and a decrease in the base rate from 3.9% to 3.7%. The start of the year brought a significant increase in service prices. In February, there will undoubtedly be a rise in fuel prices. The prices of basic goods have probably dropped. Although the Federal Reserve prefers PCE deflation as an inflation measure, the market will likely react strongly if there are surprises in the publication. This is because the CPI data is released earlier and thus provides some indication of how PCE measures may pan out.

The market will use today’s data to weigh the chances of a rate cut by the Fed as early as June. Currently, it assumes that the chance of a cut at the start of the summer holiday period is around 60%. Lower than expected inflation should increase this probability; there is quite a bit of room for adjustment.

Gold remains high, having reached an all-time high on Friday. Such dynamic increases, as seen in the last week, are not sustainable in the short term, so a technical correction is naturally expected. Will we see it today? It’s possible. My suggestion would be to keep an eye on the level of about $2135 – the previous record set in early December 2023. An ounce currently costs close to $2180.

Łukasz Zembik Oanda TMS Brokers

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