Will macro data from the US cause greater market volatility?

Today we will receive a key publication - CPI inflation measures. Even though the Fed prefers a different indicator, namely the PCE deflator, today's data has been causing greater market volatility for some time now. The data will cover consumer price developments in March. Forecasts point to minimal year-on-year decline in the underlying indicator and the growth of the basic.

Yesterday, the dollar was depreciating in the first part of the day. However, in the afternoon we observed a decline EUR / USD exchange rate from around 1,0890 to 1,0850.

The market is looking for confirmation

Current inflation readings, especially those in the United States, are being closely watched. The market is looking for confirmation, or lack thereof, that the disinflation process has ended. The Federal Reserve continues to seek further evidence that whether it will be right to reduce interest rates in June. Recent weeks have brought a lot of doubts as to whether June will actually materialize.

The last labor market report showed strength, which postponed the chances of the easing cycle starting in mid-year. Let us recall, however, that Powell clearly indicated that the labor market does not have to fall into recession for the cost of money to be reduced. Perhaps that is why the USD strengthened last Friday NFP report was it temporary? Or maybe the dollar has lost its appreciation potential for the moment? After Friday's labor market data, the market changed its estimates of a mid-year cut reduced the chances of such a scenario from 60%. up to 50 percent. However, this change was not visible in the valuation of the US dollar.

Dollar with a chance to strengthen

Recent behavior on the currency market suggests that a larger movement (in this case, depreciation) in the dollar may occur if the readings are lower than the consensus. If inflation surprises with higher results, then the USD has a chance to strengthen, but this move may be somewhat limited and short-lived.

Inflation in the US has increased slightly since the beginning of the year. The downward trend has clearly flattened out. The median estimate of analysts polled by Bloomberg assumes core inflation at 0,3%. month to month and the same dynamics in the case of the basic indicator. On a year-to-year basis, the base rate is expected to fall from 3,8%. up to 3,7 percent and the overall CPI is expected to accelerate from 3,2%. up to 3,4 percent y/y.

Source: Łukasz Zembik, OANDA TMS Brokers