Dinner is served. Inflation as the main course

Today, the main dish for the market will be the publication of inflation in the US for February. The dollar will certainly react to the data and the scale of changes in the currency market will depend on the size of the surprise, if we receive it at all.

The rate of the main currency pair, after setting a local maximum of 1,0980 on Friday, is below this level but still above 1,09. The stock exchange on Wall Street yesterday behaved in an indecisive manner. Nasdaq Composite and SP500 lost and the Dow Jones gained slightly. Gold is consolidating after setting a new record before the weekend.

Indicators with an upward trend

In recent months, disinflation seemed to have stalled somewhat. Of course, annual rates continued to decline, although not as rapidly as a few months ago. The base rate will likely continue to decline, but the pace will not be as impressive as in 2023.

More importantly, monthly change rates have been trending upwards recently. Forecasts indicate that CPI will grow from 0,3 percent up to 0,4 percent while the base rate is expected to decline slightly from 0,4%. up to 0,3 percent On an annual basis, the market consensus indicates stabilization of the main measure at the level of 3,1%. and a decline in the base rate from 3,9 percent. up to 3,7 percent The beginning of the year brought a significant increase in service prices. February will certainly see an increase in fuel prices. Prices of underlying commodities have likely declined. Even though the Fed's preferred measure of inflation is the PCE deflator, the market will likely he reacted strongly to surprises in the publication. This is because the CPIs are presented earlier and provide some sort of indication of how the PCE measures may perform.

The long-awaited correction in gold

Through the prism of today's data, the market will assess the chances of the Fed cutting rates already in June. At the moment, he assumes that there will be a chance to start at the beginning of the holidays is around 60 percent. Lower-than-expected inflation should increase this probability; the room for correction is quite large.

Gold is still high and set the ATH (all time high) level on Friday. In the short term, such dynamic growth that we observed last week is unsustainable, so a technical downward correction will be the natural course of events. Will we see her today? Possibly. I would suggest observing the level around USD 2135 – i.e. the previous record set at the beginning of December 2023. An ounce currently costs close to $2180.

Source: Łukasz Zembik, OANDA TMS Brokers