The stock markets in the US and Europe, as well as in Asia, kicked off the week on a positive note. As the economic calendar lacks any important releases, traders are fully focused on the Senate's decision on Biden's $1.9 trillion relief package.
At the beginning of the week, buoyant market sentiment boosted demand for stocks, yet pushed down the US dollar. At the same time, US Treasury yields have been correcting for several days. Yields moved upwards mostly due to concerns over the strengthening of inflationary pressure in the US. If it happens, the Fed will have to reduce its bond-buying program sooner or later. Naturally, it will affect the equity market and the US currency. The rally of US government bonds helped the major stock indexes consolidate at their highs, while the US dollar asserted strength across the board.
On Wednesday, the greenback is likely to halt its decline. At the same time, US stocks may stop rising. Speculators will focus on the publication of the US CPI data.
According to the forecast, in annual terms, consumer inflation rose to 1.7% from 1.4%. in February. On a monthly basis, it added 0.4% compared with a 0.3% increase in January.
The basic values of consumer inflation, which take into account changes in the prices of goods and services, except for food and energy, from the consumer's point of view, should maintain the growth rate of 1.4% in annual terms, but add 0.2% for the month against an increase of 0.1% a month earlier. The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of consumer goods and services, such as food and energy. In annual terms, the indicator is expected to total 1.4% but gain 0.2% per month against an increase of 0.1% a month earlier.
This data is of great importance as it will have a significant impact on the dynamics of US Treasury yields. Despite the recent correction, Treasuries still remain at high levels. For example, the 10-year Treasury yield is still held above the psychological level of 1.5%.
If the inflation data meets the forecast values or even surpasses them, US Treasury government bonds will peak up steam. Besides, an increase in inflation looks likely as business and manufacturing activity in the US improved albeit slightly. If so, the equity market may experience a decrease, whereas the US dollar is likely to gain momentum.
Daily forecast:
The EUR/USD pair is trading above the level of 1.1865 ahead of consumer inflation data. If the report shows a rise in inflation, the pair may drop to 1.1800 amid the strengthening of the US dollar.
Gold is trading above 1708.00 after a sharp recovery over the past two days. If the inflation data triggers the rally of US Treasuries, gold may again decline to the recent low of 1677.00.
