On Friday, market participants got to know pivotal data on the US employment. The NFPs for September proved that the cycle of monetary tightening has not hurt the domestic economy and employers continue robust hiring. It means that the Federal Reserve sees no obstacles to crusade against soaring inflation.
Why didn't this positive data provide the US dollar with traditional support?
The thing is that the idea of sharp rate hikes has been already priced in by market participants. Moreover, other major central banks also raise interest rates, following the same path as the US regulator. So, hawkish policies of other central banks erode the US dollar's strength and dampen its rapid rally. The next market catalyst will be a report on the US inflation which is due on Thursday. The consensus suggests that the annual US CPI could have dipped to 8.1% from 8.3% but the index is expected to inch up 0.2% in September on month following a 0.1% uptick in August.
If the actual figures show not only easing inflationary pressure but a lower-than-expected decline, for example, the annual reading of 8.0% or even 7.9% and a slowdown to 0.1% on month against the 0.2% expected, the market will regain optimism. Indeed, evidence of a slowdown in inflation could arouse expectations of a moderation in the Fed's rate hikes. Hence, markets could expect the Fed to slacken the pace of the nearest hike to 0.50% instead of 0.75% as initially expected. In this case, the US stock market will perk up whereas lower Treasury yields will shake the greenback's strength.
As for the currency market, currency pairs are sure to consolidate ahead of the US CPI release. The currency pairs which include the US dollar are going to trade sideways.
Intraday forecast
EUR/USD
The currency pair is trading above the level of 0.9720. If the pair defends this level, the price could correct upward to 0.9815 and remain in the range between 0.9720 and 1.9815 until the publication of the US CPI on Thursday.
GBP/USD
The currency pair has settled below 1.1115. If it surpasses this level, the price could rise to 1.1220.
