The US dollar continued to rise almost the entire day yesterday, although not at the same pace as on Friday evening. However, the mood on the currency market dramatically changed around trading's close – the US dollar began to lose its position. The reason lies in inflation, particularly Fed's inflationary expectations, which was released just yesterday. These very expectations were raised from 4.8% to 5.2%, which is noticeably higher than the forecast of 4.9%. This means that the US regulator does not expect inflation to decline soon, or, at best, to stabilize around the current level despite the fact that inflation has reached a record level over the past few decades. Such high inflation may well undermine the economic recovery. And if it remains high for a long time, then the probability of such a development of events increases exponentially.
Inflationary Expectations (United States):
Today, the UK's unemployment rate began with a decline from 4.7% to 4.6%, which turned out to be somewhat better than forecasts since the unemployment rate was expected to remain unchanged. Nevertheless, the market practically did not react to such positive news in any way. Apparently, market participants are waiting for something more serious.
Unemployment rate (UK):
The market is waiting for US inflation, around which all the events of today will develop but with slightly different results than yesterday. The growth rate of consumer prices in the United States should slow down from 5.4% to 5.3%, thereby somewhat reducing existing concerns about the sustainability of the recovery of the American economy. However, inflation expectations indicate that its further decline is extremely unlikely. Nevertheless, the very fact of its decline, albeit insignificant, is already an extremely positive factor that will contribute to the resumption of the US dollar's growth.
Inflation (United States):
The downward movement from the resistance area of 1.1880/1.1905 brought the quote back to the level of 1.1770, where there was a pullback. The downward trend cycle is still relevant in the market, but for this to continue, the quote must hold below the level of 1.1800. This will lead to an increase in the volume of short positions and a movement towards the range of 1.1770-1.1700.
Traders will consider an alternative scenario if the price is kept above the level of 1.1850. In this case, the downward cycle will be disrupted, which may lead to a change in trading interests.
The GBP/USD pair moves between two price levels 1.3800/1.3880, consistently rebounding from them. In this situation, the signal for action will be the price holding outside of a certain level for a four-hour period. This step of the market will indicate the subsequent course of the quote.