The market for currencies is watching the US inflation index in October with great attention. This could significantly impact the movement of the dollar, mainly when an increase in the US Federal Reserve confirms the ongoing acceleration of the tightening of the monetary system if inflation continues to increase. Here’s a look at the anticipated data and the impact it has on the trade in the dollar:
First, Take a look at the US inflation figures in September of last year:
Data from the United States revealed that US inflation continued to increase during September of last year, as the US Consumer Price Index increased in monthly manner by 0.4 percent. In contrast, it was anticipated to increase by just 0.2 percent. In the same way, data revealed the US core inflation increased on an annual basis by 0.6 percent, which was higher than expectations from the market for a growth of 0.4 %.
On a year-to-year basis, the figures showed US inflation rose by 8.2 percent at the close of September. This was more than expectations for only 8.1 percent growth. The earlier report of this index saw a rise of 8.3 percent during August.
Second Statements of decision-makers about US inflation:
In the last few months, decision-makers made many statements regarding the level of US inflation. In this sense, Federal Reserve member Esther George said in mid-October, the complete and actual fact is US inflation is relatively high, and there is no reason to believe that the US Federal Reserve doesn’t have a story to tell. It is evident to those who expect inflation, encouraging the steady increase in interest rates. The rate of raising interest rates needs to be in line with the financial and economic conditions.
Additionally, in April, New York Federal Reserve Bank of New York member John Williams commented on the long-term inflation outlook in which he noted that this outlook favors a steady long-term trend in US inflation. Consequently, there is a strong likelihood that Fed will continue working to bring the inflation rate to 2% by raising interest rates in the near term while stating that longer-term US inflation expectations for the United States will remain remarkably steady at rates that are generally in line with the Fed’s goals to control inflation.
In this regard, the policy maker and participant in the US Federal Reserve Bank of Minneapolis, Neel Kashkari, made numerous remarks regarding inflation and the bank’s expectations for US consumer prices. In his comments, he said that US price inflation does not originate from wage increases and that wage growth is a reason to try to keep up with inflation, not push it upwards. Additionally, the Fed’s old analysis model is ineffective in the present economic climate.
3rd Market Expectations about The US Inflation rate
Market forecasts suggest that the acceleration of interest rate increases over the past couple of months could decrease US inflation in the last month. Based on expectations, US monthly inflation will likely record a rise of 0.6 percent. In addition, the core inflation is predicted to increase by just 0.5 percent, and forecasts suggest that US inflation on a per-year basis could be slowed to 7.9 percent at the end of October.
Four: US inflation index scenarios and their possible effects on the dollar
The US dollar index was stable near the 110-point mark due to the reaffirmation of market concerns concerning the ongoing efforts of the US Federal Reserve in its quest to tighten the monetary policy and increase rates of interest, particularly with the expectation that US inflation could slow to below 8% at the close of the month. Therefore, the dollar is awaiting the announcement of US inflation to give the Fed more support and rise to record levels.
The first scenario has positive inflation figures and is higher than what the market is expecting since inflation is higher than 0.6 percent. In the annual US, inflation is also up to more than 7.9 percent, and this optimistic forecast will provide a needed boost to the dollar index and could lead to a solid increase to 112 points. This scenario could increase more likelihood the US Federal Reserve will be increasingly enticed to raise interest rates throughout December further to limit the rising US inflation.
The second scenario is portrayed in the negative figures of US inflation. The fact that it falls below expectations and decreases down to the 7.9 percent level on Oct. 31st and, as such, the dollar could decline towards 108 points or lower, as this scenario could make the Fed more cautious in regards to tightening their money-related policy and the interest rate hikes will be discussed at the December meeting next year due to the slowing of inflation, will cause the Fed less likely to raise rates of interest.
