Optimism still dominates the markets

The market has largely made up for the losses incurred as a result of the negative CPI reading from the US. Wall Street indexes closed the day in positive territory, the Nasdaq Composite gained 1,3%. and SP500 1 percent. However, the scale of the Dow Jones industrial growth was smaller compared to other benchmarks and amounted to 0,4%. DAX Today it is approaching historical records.

The EUR/USD rate rebounded to 1,0740 and the yields of 2-year US bonds corrected to 4,56, when the day before we observed a ceiling above 4,66%. Yesterday we received the first comments from the Fed after the inflation report. Today, the markets' attention is focused on US retail sales.

The "bumpy" road back

The following speakers spoke about monetary policy and inflation: Michael Barr – Fed vice chairman for supervision. He acknowledged that the central bank would need to see more data showing that inflation is heading towards 2% before it starts cutting interest rates. He also added that stronger-than-expected inflation data on Tuesday was a reminder that the road back to the Fed's target could be "bumpy." He emphasized the validity of the precautionary approach, which is also currently preferred by Powell.

Austan Goolsbee spoke dovishly and dismissed the prospects of higher readings CPI in the coming months. He admitted that even if inflation remains slightly higher for a few months (as many forecasts suggest), it will still be consistent with the path back to the goal. Goolsbee currently does not have voting rights in the FOMC, so his words are losing significance for the market.

Risk and optimism among investors

For now, a single (worse) inflation report from the US is unable to exert negative pressure on market sentiment. Optimism still dominates and investors choose risk, as evidenced by the return to growth in stock indices. Market believes more and more in a soft landing and sees that the continuing restrictive monetary policy does not have a destructive impact on the economy. On the other hand, inflation is falling, although the disinflation process has slowed down significantly.

March has become unrealistic when it comes to the start of interest rate cuts. The chances that this process will begin in May have also been greatly reduced. June is still highly probable, but this may change over time and everything will depend on the data.

EUR / USD exchange rate it is true that it recorded an upward session yesterday. However, the rebound is only cosmetic enough on the currency market the strength of the dollar should be visible at least in the medium term. Today, investors' attention is focused on retail sales results, which will demonstrate the strength of the American consumer.

Source: Łukasz Zembik, OANDA TMS Brokers