World markets "rolled back" yesterday amid fixing previously received profits in anticipation of the publication of the most important data on consumer inflation in America today.
According to the consensus forecast, November inflation rose in annual terms to 6.8%, which was noted 39 years ago against the October value of 6.2%. The base value of inflation was expected to rise to 4.9% against 4.6% in October. On monthly terms, a slight correction is expected in the growth of general consumer inflation to 0.7% from 0.9%. Core monthly inflation is expected to fall from 0.6% to 0.5%.
In fact, the global stock markets are seeing a decline in stock indices before the release of this data. And in the currency market, there is stagnation on the dollar ICE index, which has been spinning since the end of November near the 96-point mark.
How will the publication of important inflationary macro indicators from the US affect the markets?
If the data turn out to be in line with forecasts (both annual and monthly, or higher), then this will only increase the likelihood of the Fed raising interest rates earlier than markets currently expect. It can be recalled that it is assumed that the first increase in the cost of borrowing will occur next summer, and the regulator will reduce the volume of asset repurchases under QE by $ 15 billion per month. But a possible increase in inflationary pressure may cause the first increase in interest rates even before the end of the QE program in the first quarter of 2022, and the rate of reduction in asset repurchase will increase to $ 30 billion per month. More recently, the Fed monthly repurchased government bonds and secured corporate mortgage securities in the amount of $ 120 billion.
In a situation of increasing inflationary pressure, it will be possible to observe a resumption of decline in stock indices around the world and a correction in prices for commodity and raw materials assets. In this case, the dollar exchange rate will receive support, since the prospects for an earlier rate hike will again support the growth of Treasury yields, and the reduction in dollar liquidity in the financial system will contribute to the rise in the value of the US currency.
Naturally, if the inflation indicators show a decline, even a slight one, this may slightly calm the markets and allow them to hope that inflationary pressure is weakened, which means that the Fed will be able to start the rate hike process only in the second half of next year. In this case, the demand for risky assets will grow, while the US dollar will be under pressure.
The importance of the US statistics released today in light of the upcoming Fed meeting on monetary policy, which will take place on December 14-15, should also be considered. The figures presented today on inflation indicators will definitely have a significant impact on his decision on rates and the general course of monetary policy for the next year.
Forecast of the day:
The EUR/USD pair will either receive support today or, on the contrary, will fall on the wave of US inflation data. If inflation rises, the pair may decline to the level of 1.1190 and vice versa, its correction will cause a sharp rise in the pair to 1.1375.
The GBP/USD pair will also react to news from the US, as will EUR/USD. If there is growth in inflation, as well as negative news on UK GDP, this will lead to the pair's decline to 1.3160. Conversely, other positive data will support the pair. In this case, it will rise to 1.3300.