Market Analysis: Important News on US Inflation Rock Financial Markets


According to data published yesterday, the actual CPI value was = 3.2%, expected = 3.3%, previous value = 3.7%. The Core CPI value also dropped from the previous value = 0.2% to the current value = 0.1%.

Thus, inflation in the United States is confidently approaching the target of 2%, which minimises the likelihood of further tightening of monetary policy.

The news was followed by a sharp weakening of the dollar as market participants believe the rate hike cycle is over. Now the topic of discussion “when the Fed will start cutting rates” is becoming more relevant. It is expected that monetary policy easing is just around the corner, and a more affordable dollar will create conditions for business development.

As a result, US dollar-denominated financial assets rose sharply in price amid news of falling inflation:
→ gold rose in price by approximately 1.2% to the resistance level of 1,970;
→ shares went up in price. The S&P 500 index even broke through the upper boundary of the channel, which we indicated in yesterday's analysis, indicating signals of increased demand;
→ currencies rose in price paired with the dollar.

The GBP/USD rate rose yesterday to a 2-month high.

However, today there was news about the level of inflation now from the UK. The CPI index was: actual = 4.6%, expected = 4.7%, previous value = 6.7%.

That is, the fight against inflation in the UK is also yielding results, although it will most likely take longer to achieve the target indicators than in the USA.

The reaction to today's news was a slight decline in GBP/USD after yesterday's rise.

Moreover, the daily chart shows that technically, a rollback can develop into a more significant movement, since:
→ the rate is near the upper border of an important downward channel (shown in red);
→ the resistance level for GBP/USD could be the psychological level of 1.25 pounds per US dollar.

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