As expected, J. Powell did not surprise the financial markets at the confirmation of his candidacy in the Senate on Tuesday, which caused the growth of stock indices both in America and in the world as a whole.
An important message from him was the statement that the US economy is doing well and that it can withstand the beginning of a cycle of tightening monetary policy. In addition, he also said that the Fed will not just raise rates to suppress inflation, but will take into account other consequences that may have an impact on the economy. In fact, he made it clear that the regulator would act based on the situation in the economy and the general development of events.
In view of his commentary on the decline in the US stock market, the US dollar stopped strengthening, which resulted in a fall in the yield of Treasury government bonds, an increase in demand for the company's shares, and a decline in the US dollar. On the other hand, European stock indices closed in a positive zone, and before the opening of trading in Europe this morning, all major Asian stock indices are growing confidently.
The markets were shocked after the minutes of the Fed's December meeting were released on January 5 and began to prepare for an earlier increase in interest rates, possibly in March. However, Powell's speech in the Senate showed that the Fed continues to move, generally trying not to bring down financial markets, and continuing to hope that inflation growth will at least stabilize or correct downward.
In this regard, the publication of US consumer inflation data is very important. It can be recalled that its decline is forecasted in monthly terms, and then growth in annual terms. But since investors will be interested in the dynamics of inflation in the short-term monthly period, it is the figures for December that will definitely have an impact on the dynamics of the currency markets.
If the data show a predicted slowdown or even greater decline, this will contribute to an increase in demand for risky assets with a simultaneous weakening of the US currency. At the same time, if the monthly data show an increase in inflation above expectations, then the markets are likely to be under pressure, which will lead to a resumption of sales in the stock markets, commodity assets, and growth in the US dollar.
Forecast of the day:
The EUR/USD pair is consolidating in the range of 1.1275-1.1385 before the release of important data on US consumer inflation. If the data turns out to be below the forecast, this will lead to the pair's growth, and it will rush to the level of 1.1435.
So far, spot gold has stopped at the level of 1822.30 after a local rally towards the target of 1833.00. A decline in monthly US inflation will lead to an increase in demand for gold, and it may continue to rise by 1833.00.