Although the latest data on US inflation and job growth showed a decline, markets believe that the Fed will continue raising rates in order to achieve their target, which is to reduce inflation to 2%.
This is practically confirmed by New York Fed President John Williams, when he said yesterday that even though there is a slowdown in inflation, the figure is still high and significantly above the target. This sort of implies that there may be one more rate hike.
Investors responded weakly to the news, indicating that they are prepared for such a scenario. It is also likely that they are more focused on the upcoming report on consumer prices, which is due out today.
Forecasts said consumer prices in March should adjust from 6.0% to 5.2% y/y and fall from 0.4% to 0.2% m/m. If the numbers do not disappoint, then this will be the slowest yearly growth since May 2021. But since it will still be noticeably above the 2% target, it is likely that in the wake of the banking crisis and the desire to suppress inflation to the necessary target level before the possible start of a recession, the Fed will still raise rates at the May meeting, and most likely, it will be another 0.25%.
If the data is not higher than expected, or even slightly lower, there could be a local rally in stock markets, not only in the US but worldwide. This should contribute to the reduction of Treasury yields and the weakening of dollar.
Forecasts for today:
EUR/USD
The pair is again approaching the resistance level of 1.0940 ahead of fresh inflation data in the US. If the report disappoints, there will be a further price increase to 1.1035.
XAU/USD
The pair is trading below the level of 2030.80. A decrease in inflation will hit dollar, but it will not eliminate the risk of a recession in the US, which could increase the demand for gold as a safe asset. In this case, a rise to 2060.00 is possible.
