US Inflation Alert: How Will Markets React?
Investors are facing a busy week of economic data that includes the release of consumer price and producer price index data for March on Wednesday and Thursday (US time), respectively. The results of these reports will help determine whether or not the Fed will pause or end its rate-hiking campaign. While investors are leaning towards a continuation of the Fed's tightening campaign, the possibility of a pause should not be underestimated.
In February 2023, the annual inflation rate in the US decreased to 6%, the lowest since September 2021, compared to January's 6.4%. Market expectations for this March's data predict a significant drop to 5.2%. Importantly, if inflationary pressures do not weaken as anticipated, traders may increase their bets on additional rate hikes beyond the predicted 25-basis-points in May (or even revise their expectations for the May hike).
At the beginning of the week, investors responded to the March jobs report, which was released on Good Friday, with nonfarm payrolls growing by 236,000 for the month. This was roughly in line with the market estimate of 230,000, and the unemployment rate fell to 3.5% compared to the previous month's 3.6%.
As a result, the US dollar lost ground in early Monday trading, with the EUR/USD double peaking before traders lost confidence, causing the euro to fall below Monday's opening and crash through 1.0885. This level has served as the pair's bottom several times this month, as well as acting as a barrier for a longer-term rising trendline. Traders might now focus on 1.0822 and 1.0800 as the next downside targets.
Following the release of CPI data, the Federal Reserve is expected to issue the latest Federal Open Market Committee (FOMC) meeting minutes.
In February 2023, the annual inflation rate in the US decreased to 6%, the lowest since September 2021, compared to January's 6.4%. Market expectations for this March's data predict a significant drop to 5.2%. Importantly, if inflationary pressures do not weaken as anticipated, traders may increase their bets on additional rate hikes beyond the predicted 25-basis-points in May (or even revise their expectations for the May hike).
At the beginning of the week, investors responded to the March jobs report, which was released on Good Friday, with nonfarm payrolls growing by 236,000 for the month. This was roughly in line with the market estimate of 230,000, and the unemployment rate fell to 3.5% compared to the previous month's 3.6%.
As a result, the US dollar lost ground in early Monday trading, with the EUR/USD double peaking before traders lost confidence, causing the euro to fall below Monday's opening and crash through 1.0885. This level has served as the pair's bottom several times this month, as well as acting as a barrier for a longer-term rising trendline. Traders might now focus on 1.0822 and 1.0800 as the next downside targets.
Following the release of CPI data, the Federal Reserve is expected to issue the latest Federal Open Market Committee (FOMC) meeting minutes.
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