📆US CPI data at 12:30 pm GMT expected to show deceleration
Situation on the markets have calmed following a chaotic end of the previous week and a volatile launch of this week. While developments in the US banking sector are likely to continue to shape market movements in the coming days, easing of initial concerns allows investors to also pay attention to other factors, like for example today's US CPI reading for February scheduled for 12:30 pm GMT.
Economists expect quite a significant deceleration in headline US price growth, with inflation rate dropping from 6.4% YoY in January to 6.0% YoY in February. This reading will be key for shaping expectations ahead of next week's FOMC decision (March 22, 2023). Issues in the US banking sector have cast a shadow of doubt on the incoming decisions of the US central bank.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile app12:30 pm GMT - US, CPI inflation for February
-
Headline. Expected: 6.0% YoY expected vs 6.4% YoY previously
-
Core. Expected: 5.5% YoY expected vs 5.6% YoY previously
As recently as a week ago (after Powell's hearings in Congress), markets were pricing in a 50% chance of a 25 basis point rate hike and a 50% chance of a 50 basis point rate hike. Now, money markets pricing in around-70% chance of 25 basis point rate hike and around-30% chance of Fed keeping rates unchanged. Some institutions went even further with Nomura expecting a 25 basis point rate cut next week and announcement that QT is over! In our opinion such a decision would be an overkill given that US inflation remains significantly above Fed's target. Nevertheless, recent US banking sector issues make a 25 bp rate hike much more likely than a 50 bp move and the Fed is likely to send a cautious message next week. A pause cannot be ruled out entirely but spare for developments in the US banking sector, whose impact on the broader financial sector and economy remains unknown yet, there are little reasons to justify no change in the level of rates.
Money markets see only a 70% chance of a 25 basis point FOMC rate hike next week. Source: Bloomberg
EURUSD
US dollar took a hit during the recent US banking sector turmoil as US yields plunged and dragged USD lower along. Partial reversal of those moves can be observed today with short-term US yields climbing and the US dollar regaining some ground. Taking a look at the EURUSD chart at the H4 interval, we can see that the main currency pair broke above the 200-period moving average (purple line) at the beginning of this week and a retest of this moving average was made today. Bears failed to break below and some relief can be spotted in recent hours. Nevertheless, the zone around the aforementioned moving average also includes 1.07 handle and 38.2% retracement of the downward move launched at the beginning of February. A break above this zone and a demand-side reaction to the subsequent retest suggests that path of least resistance may be leading higher.
EURUSD at H4 interval. Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
