On Thursday, the markets played out the outcome of the last Fed monetary policy meeting, which showed that the camp of "doves" in American economic policy won, continuing to convince the markets that the ultra-soft monetary rate will dominate for some time.
If we compare the reaction of investors to the last meeting of the Fed and how it was earlier, we can say that they have a full understanding that the monetary policy of the Central Bank can change at any time, despite the repeated assurances of the regulator to follow the course of support for the national economy. The main reason for this probability is still the growth of inflation. But as we argued earlier, the Federal Reserve will take a wait-and-see position before finally making sure that its forecast of an early decline in inflation after a sharp rise in the spring of this year is wrong or, on the contrary, turned out to be correct. We believe that the final decision will be made at the September meeting, which means that until the end of summer and the beginning of September, the markets will continue to remain in a state of uncertainty, nervously reacting to the statements of Fed members or the publication of economic statistics.
Just today, the values of inflation indicators will be presented, which will either convince the American regulator to continue to conduct an ultra-soft monetary rate, or not.
Today, data on the price index for personal consumption and figures on income and expenses of Americans will be published. The basic price index for personal consumption is expected to grow to 3.7% in annual terms from 3.4% a year earlier. On a monthly basis, it will add 0.6% in June against 0.5% in May. As for earnings, they should slightly adjust upwards, but they will still remain in negative territory at -0.3% against -2.0% last month. Expenses are also expected to decrease to 0.7% last month from the May value of 0.9%.
In addition to these important data, the values of consumer expectations and inflation from the University of Michigan will be presented. The first indicator should show a decrease to 78.4 points from 83.5 points, and the second, on the contrary, an increase of 4.8% against 4.2%.
How will the markets react to these statistics?
If the data published today turns out to be higher than expected – this may provide local and temporary support for the dollar, as well as "weigh down" the demand for company shares and commodity assets. Should we expect a decrease in inflation indicators in the first place? We think that it's not worth it. Therefore, most likely, the market reaction will be the same as we have outlined. Although, as history shows, there can be surprises.
Forecast of the day:
The EUR/USD pair may receive support against the background of data on consumer inflation in the eurozone, if they show growth above the forecast. In this case, the pair will receive support and will continue to grow first to 1.1910, and then to 1.1940.
The AUD/USD pair may be under pressure in the wake of the growth of these inflation indicators in the United States. This may lead to a decrease in the pair first to 0.7330, and then to 0.7295.