The Dollar Index seems to be moving in a narrow range around 95.5 points today, stabilizing ahead of the release of inflation data from the United States. Meanwhile, EUR/USD seems to be consolidating in the 1.1400-1.1480 range.
The inflation data could help provide fresh clues on the timing and magnitude of the Federal Reserve's monetary policy tightening.
Will record inflation prompt the Fed to react more strongly?
Last week's statistics, which were released on Friday, showed that non-farm jobs rose by 467,000 in January, beating expectations and indicating a limited impact of the omicron coronavirus variant on the US labor market. As a result, the odds of a 50 basis point interest rate hike by the Fed in mid-March 2022 appear to be above 20 percent.
The market valuation may be changed by today's publication of the price change in the US economy in January. According to the market consensus, the CPI may increase by 7.3 percent in relation to January last year. This, in turn, could mean the largest increase since 1982 and strengthen the case for a more aggressive stance by the Fed.
On the other hand, Loretta Mester, president of the Cleveland Fed branch, dismissed speculation about a 50 basis point rate hike in March, saying she doesn't see a compelling case for such a move and adding that rate hikes after March will depend on how persistent inflation is.
Iran will help meet oil demand?
With inflation, it is impossible not to mention oil. After all, fuel prices seem to be one of the main factors driving up the price level in the economy. On Thursday, WTI crude oil futures seem to be holding near $90 per barrel. The EIA release showed that US crude inventories fell by about 4.8 million barrels last week, while the market was expecting an increase of 369,000 barrels.
Oil may have recently reached its highest levels since 2014 as a recovery in demand combined with declining inventories and supply disruptions may have pushed prices higher. Capacity constraints among OPEC members and geopolitical tensions in Eastern Europe also likely contributed to higher energy prices.
This week, the rise appears to have stalled as the prospect of a nuclear deal with Iran became more likely after talks resumed in Vienna. Analysts point out that Iran could increase output by as much as 1.5 million barrels a day if an agreement is reached that allows sanctions to be lifted.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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