The Federal Reserve may this week announce its decision to raise interest rates in the US. Market expectations are for a 25 basis point hike.
The Fed's decision, which will be announced on Wednesday, may affect many markets: from the US dollar, to stock indices and precious metals, to bonds.
Will rates go up after the inflation data?
The likelihood of raising interest rates seems to be increased by the inflation report. The annual rate of price growth in the US accelerated to 7.9 percent in February, the highest level in 40 years.
The data came even before the war-induced rise in commodity prices, which puts central banks in a bind between curbing inflation and supporting economic growth.
Investors may pay attention to any changes in central bank forecasts for rates, inflation and the economy, given the added uncertainty surrounding Russia's assault on Ukraine.
What's more, the dollar may have found support in rising Treasury bond yields, which jumped above 2 percent again as concerns about a rate hike emerged. Today, the dollar index held firmly above the 99-point level in anticipation of a possible interest rate hike. Earlier it had risen for five consecutive weeks to near two-year highs.
Oil prices: down from $130.5 to $106
The relevance to inflation and the Fed's actions may be the price of oil. This one seems to have dropped about 3 percent on Monday, to $106 per barrel, extending last week's decline on hopes of a diplomatic solution to the war. U.S. Deputy Secretary of State Wendy Sherman said Sunday that Russia is showing signs of willingness to engage in substantive negotiations. Another round of talks on cease-fire terms is scheduled to begin today.
U.S. oil reached its highest level in 14 years last week at $130.5 before turning around and closing the week sharply lower as investors assessed a potential improvement in the supply outlook, which has been disrupted by Russia's invasion of Ukraine and related sanctions.
Investors are now waiting for reports that could indicate a potential oversupply of oil this year. Investors are also following developments in the Iranian nuclear talks, which faced the prospect of collapse when a last-minute Russian demand forced world powers to halt negotiations.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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