The US consumer inflation data published on Wednesday turned out to be ambiguous, but despite this, the market perceived it as generally positive.
Based on the presented data, the overall annual consumer price index maintained its growth rate of 5.4% against the expected slight decline to 5.3%, but at the same time, the indicator significantly fell in monthly terms from 0.9% to 0.5% in July. The value of core consumer inflation in July declined to 0.3% from 0.9%, and on to 4.3% from 4.5% in annual terms.
The market initially reacted negatively to the ambiguous figures, the US dollar received support, and futures for US stock indices declined. But then positive sentiments began to prevail on the markets, which led to a weakening of the US dollar and to an increase in demand for risky assets. By the end of trading, the ICE dollar index declined from 93.07 to 92.91 points.
In morning trading, the dynamics of the US stock index futures are still negative, but it is likely to change since investors believe that the inflation data will not stimulate the growth of expectations for an earlier change in the monetary policy rate. However, the Fed member's ambiguous position makes them alert. On Wednesday, the CEO of the Federal Reserve Bank of Dallas, R. Kaplan, said that he prefers the announcement of plans to start reducing the purchase of assets-mortgage securities and bonds in September and to start implementing the process of reducing purchases in October.
His view generally coincides with ours. We believe that a decision may be made to reduce the volume of asset repurchases either at the forum in Jackson Hole at the end of this month or at a meeting of the Federal Reserve in September. In the winter, the implementation of this will start.
How can the market ultimately react to the evolving situation in the US economy?
We believe that investors are still confident that there will be no changes in monetary policy in the coming months, which means that if there is positive news, the demand for risky assets will continue. But at the same time, we should not expect a noticeable decline in the dollar exchange rate, which continues to be supported by an increase in the yield of treasuries and by the continuing understanding in the markets.
In any case, the US regulator will still decide to change the course of its monetary policy either by the end of this year or next year. In the meantime, we should probably expect to achieve some kind of equilibrium in the markets.
Today, the focus will be on the publication of data on industrial inflation and the number of applications for unemployment benefits for the past week in the United States.
Forecast of the day:
The EUR/USD pair remains under pressure amid the expected divergence of the monetary policies of the Fed and the ECB in the near future. If the Fed is expected to start gradually curtailing the ultra-soft monetary policy rate, the European regulator is expected to maintain it for an indefinite period of time. The development of such a situation may allow the pair to decline first to the level of 1.1710, and then to 1.1635.
The continued weakening of the dollar will contribute to the growth of the gold's price. Its consolidation above the level of 1754.00 may lead to a price increase to 1792.35.