It seemed that the new economic data on Wednesday calmed the markets, which was the reason for the resumption of demand for company shares and the weakening of the US dollar.
Yesterday's publication of consumer inflation data for February showed that its growth rate remained stable, both at an annual rate of 1.7% and at a monthly rate of 0.4%. However, the focus of investors are still on the basic values of this indicator, which completely depend on consumer behavior and correspond their ideas to the dynamics of inflation. Unfortunately, it turned out that the outlook was the opposite. The annual core CPI rose only by 1.3%, against the forecasted growth of 1.4%. In monthly terms, the indicator maintained its January dynamics and gained only 0.1%, against the expected growth of 0.2%.
It can be recalled that the markets were eagerly waiting for these data, since they are mainly important for the US Treasury government bond market and have recently had a direct impact on the growth or decline in yields on these securities.
Earlier, a noticeable increase in yields led to the fact that the markets began to be worried that higher inflation would lead to the Fed's refusal to buy government bonds in the future, and then, to possible changes in monetary policy, moving to a cycle of raising interest rates in order to calm the sharp growth of the economy and the inflation that follows it. However, yesterday's data showed that if inflation continues to rise, it will be in a slow pace. This is until the inflationary effect begins to manifest itself on the $ 1.9 trillion aid package, which is expected to be finally taken later this week.
We can assume that the demand for shares will continue to rise, considering such market mood and investors' reaction to the latest inflation values. At the same time, the US dollar rate will remain under pressure until Treasury yields resume its growth. It is possible that this may occur around summer, when the financial assistance to the US population will be fully spent, which will stimulate an increase in inflation. However, this is a different story with a delayed temporary effect.
We believe that the results of ECB's monetary policy meeting and C. Lagarde's speech are unlikely to negatively affect the Euro's growth.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.1930. We believe that this pair will not come under pressure from the ECB results and will further rise to 1.2000.
Gold is trading slightly below the level of 1737.50. If this level is broken, growth will continue towards 1760. Gold's prices are being supported by the US dollar weakness amid the rising demand for risk and lower US Treasuries yields.
