The previous week ended with a noticeable increase in risk appetite and weaker demand for dollar. The main reason was the growing purchases of government bonds in the US, accompanied by a strong drop in yields. The scenario happened because of the latest inflation data in the US, which showed a sharp decrease in the year-on-year ratio and growth in the month-over-month one. Markets have been hoping for this kind of positive news for a long time, believing that the measures taken earlier by the Fed put further pressure on the economy.
Now that the figures improved, the US central bank may start easing the pace of rate increases, then take a break. Much will depend on the values of inflation indicators for November, which will be presented in December. If they show, if not a continuation of a strong decline, but at least a stabilization or a slight decrease, then a strong rally may occur in all markets without exception. It could be accompanied by the depreciation of dollar and decrease in Treasury yields.
Be that as it may, positive sentiment will continue today. Although stock indices in Europe and the US remain in negative territory this morning, everything may change by the start of the US trading session. In this case, dollar will continue to weaken, then decline further towards the end of the week, especially if the published data on retail sales and their volumes show better values than expected.
Data on consumer inflation in the euro area is also important as its figure will affect risk appetite. US statistics will also play an important role since the very position of the ECB on the issue of further aggressive rate hikes remains unclear.
Forecasts for today:
EUR/USD
The pair is trading above 1.0300. If market sentiment worsens, there will be a decline to 1.0235.
GBP/USD
The pair is trading above 1.1735. If buying pressure remains, it will rise further to 1.1900. But if market sentiment worsens, there will be a decline to 1.1635.
