Markets continue to consolidate, showing high volatility ahead of the release of the US consumer inflation data for January, which is due out early next week. The key question of investors is whether or not the Fed's aggressive rate hike cycle will continue, as the recent data on US employment are likely caused by the warm winter, the quick break of strikes in higher education institutions in California, and the very strong momentum of the seasonal adjustment movement of the workforce. Interestingly enough, all of this occurred due to massive layoffs from companies in the technology sector. Most likely, Fed Chairman Jerome Powell already considered these factors, so he mentioned further rate hikes in his speech. He understands that the strength of the labor market is temporary and that it will soon show some weakness.
If everything develops as expected, the Fed may not only take a pause in rate increases, but also consider its end. If that happens, dollar will come under pressure, while risk assets will see a sharp surge in demand. However, euro and pound will not move much as they have to consider consumer inflation data from Germany as well. If the report shows a resumption of growth, the ECB will raise rates further, which will not be in favor of dollar.
In short, the consolidation in markets will continue until the release of inflation data in the US.
Forecasts for today:
EURUSD
The pair is trading below 1.0760. If inflation data in Germany shows an increase above expectations, the pair will climb to 1.0835.
XAU/USD
Gold is consolidating below 1884.60. If market sentiment improves, the yellow metal will rise to 1900.00.
