Today at 14:30 we will learn the scale of March inflation in the USA. Price dynamics probably accelerated from 7.9% in February to 8.4%, the highest level in over 40 years. This may prompt the Federal Reserve to tighten monetary policy.
The biggest impact on rising inflation in the US may come from energy prices. Their increases were associated with Russia's invasion of Ukraine. Gasoline increased by about 50 percent compared to last year. Food and service prices, including housing rentals, also exerted upward pressure. Core inflation, which is excluding the most volatile components, likely rose from 6.4 percent to 6.6 percent, also the highest reading in more than 40 years
Fed's likely response to strong price growth
On a monthly basis, the inflation rate likely rose to 1.2 percent, the strongest since September 2005. Many analysts expect March to be this year's inflation peak, even though the war is not over, supply chain impediments remain, and consumer demand remains strong, which is likely to weigh on CPI for quite some time.
Markets already seem to be reacting to the strong rise in prices, as this could force the Federal Reserve to tighten monetary policy quickly. Yields on 10-year U.S. bonds rose above the 2.82 percent level this morning.On Wall Street, declines seemed to dominate yesterday, Investors may be worried about a quick increase in the cost of money. The market seems to estimate the possibility of a 50 basis point rate hike with a probability close to 80 percent.
Dollar may gain after rate hike
The Federal Reserve may announce the decision to raise interest rates at its next meeting - on 4 May. It will be important for the quotations of the American currency. This is because the interest rate of the USD may increase along with the interest rate hikes in the USA.
Currently, the dollar index is above 100 points, EUR/USD is below 1.09, and USD/JPY is at the 6.5-year peak at 126.00.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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