TREX Global:US CPI data is coming, bulls need to watch out for two red flags

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Boston Fed's Collins favors 25 basis point rate hike at next meeting

Boston Fed President Collins said she is leaning toward a quarter-point rate hike at an upcoming policy meeting, media reports said on Wednesday.

"I think 25 basis points or 50 basis points would be reasonable, I'm leaning towards 25 basis points at this stage, but it's very data dependent," Collins said in an interview.

Collins, who became Boston Fed president last year after working in academia, was a voting member of the Federal Open Market Committee (FOMC) last year, but will have no votes this year, according to the normal rotation of regional Fed presidents in the FOMC.

Currently, the futures market is pricing in an 80% chance that the Fed will increase by 25 basis points.

U.S. bond yields fell, and the market expected inflation to be on a sustainable downward path before the release of the CPI data

U.S. Treasury yields fell on Wednesday, a day before key consumer price data was released on expectations that inflation is on a sustainable downward path and the Federal Reserve will cut interest rates before the end of the year.

Economists polled by Reuters expect CPI to slow to 6.5 percent in December from 7.1 percent in November, an expectation that has fueled a rebound in stocks and bonds.

The 10-year yield fell 5.9 basis points to 3.560% on Wednesday and has closed lower in three of the past four sessions.

Dollar remains weak ahead of U.S. inflation data

During the Asian session on Thursday (January 12), the U.S. dollar index fluctuated and fell slightly. It is currently trading around 103.14, not far from the nearly seven-month low of 102.94 set on Monday. The market expects that the growth rate of U.S. inflation may slow down. Still weighing on the dollar.

The greenback has been on the back foot of late as traders bet the Federal Reserve won't have to raise interest rates as quickly as earlier thought to curb stubbornly high inflation.

Analysts at ANZ Research said in a note to clients, "Fed officials remain adamant that it won't be cutting rates anytime soon, but markets are fully de-pricing this year's hike before the end of the year. ...if those rate cuts are ruled out, the headwinds for the dollar could lessen."

ECB Governing Council Decos: Will continue to raise interest rates "substantially" at a sustained pace

The European Central Bank expects to continue to raise interest rates "substantially" at a sustained pace at future meetings to ensure inflation returns to 2 percent in the medium term, European Central Bank Governing Council and Bank of Spain Chairman Pablo Hernandez de Cos said on Wednesday.

"Keeping interest rates at a tight level will reduce inflation by curbing demand and will also prevent the risk of a sustained upward movement in inflation expectations," Decos said at a financial event in the evening.

His stance is in line with the ECB's guidance, while the head of Portugal's central bank, another governing board, Mario Centeno, said on Tuesday that the current rate hike process was nearing completion.

The ECB has raised interest rates four times in a row since July to rein in historically high inflation and has promised further hikes to steer inflation back toward its target.

TREX Global’s view:Expectations for a slowdown in U.S. inflation growth remain high, and market expectations that the Federal Reserve will cut interest rates by the end of the year have also risen. The U.S. dollar index remains weak and faces further downward risks. Worries of a global recession also support gold prices, and there is still a chance for gold prices to rise further in the short-term and mid-term. Continue to pay attention to the support of the 1900 mark and the 1920 mark. However, in the short-term, the gold price also faces a certain risk of peaking, and we still need to beware of the possibility of "boots landing" (gold prices rise first and then fall or fall back after rising). In addition, investors also need to beware of the possibility that inflation data is stronger than expected. Below, focus on the support near the 10-day moving average of 1853.16.

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