Markets strongly expect the Federal Reserve to pause hiking rates at its meeting later today following lower-than-expected inflation data yesterday.
- Yesterday saw the release of US CPI (inflation) data which showed the annualized rate had fallen even further than expected, from 4.9% last month to 4.0% this month when 4.1% was expected. The US Dollar fell, and risk assets rose following the release, as it is seen as confirming that the Federal Reserve will refuse to raise its interest rate at its meeting later today, which will be keenly watched. The month-on-month increase was 0.1% while Core CPI increased by 0.4% as expected, with the pace unchanged from last month.
- Global stock markets are bullish, partly due to lower US inflation and an expectation of no Fed rate hike today. The US and Japanese stock markets have risen strongly to reach new long-term highs, represented especially by the NASDAQ 100 Index and the S&P 500 Index (both reaching new 1-year highs) and the Nikkei 225 Index, which gained strongly to reach a new multi-year high price.
- The big 3 central banks – the US Fed, the ECB, and the BoJ – will be having policy meetings this week, so we can expect volatility in the Forex market starting today.
- In the Forex market, the US Dollar is falling again, in line with its long-term trend. Over the medium term, the British Pound has been the strongest currency, and the US Dollar the weakest. Trend traders will probably still be looking for long trades in the USD/JPY currency pair which has risen again to trade above ¥140, while the GBP/USD currency pair is close to its 1-year high price. Strength in the British Pound was reinforced yesterday by stronger than expected Average Earnings data, with markets expecting further rate hikes from the Bank of England.
- The Turkish Lira fell to another record low yesterday, after undergoing a fresh weakening ever since President Erdogan’s election victory started to look likely.
- Cocoa futures rose again yesterday, to reach another 7-year high price.
- There will be releases later today of US PPI data and the Federal Reserve meeting, after we get the UK GDP numbers.