Welcome to inflation day!
The dollar index settled above the 106.00 levels during today's trading on Wednesday, remaining close to its highest levels in more than six months, as all eyes will turn today to the US Consumer Price Index report for October, which may affect the expectations of interest rate cuts by the Fed in the future.
The US Consumer Price Index is expected to rise year-on-year by 2.6% compared to 2.4% previously, while the rest of the results are expected to prove the same as last month.
Traders are also looking forward to the Producer Price Index report on Thursday and retail sales data on Friday.
In addition, investors have been closely watching the Fed's latest comments, as Fed Chairman Jerome Powell is scheduled to speak tomorrow, Thursday.
The dollar continued to benefit from the so-called “Trump deals”, as markets bet on strong US economic growth and inflationary policies under Trump's second presidency, which would limit the Fed's ability to cut interest rates.
The market is currently pricing in a 62% probability of a 25 basis point interest rate cut in December and two more 25 basis point cuts in 2025 which is much lower than the four the Fed predicted last September.
In the Fed's latest decision, Jerome Powell said that they expect inflation to rise and that one or two months of bad data on inflation will not change the process, meaning that the Fed will cut interest rates in December by 25 basis points even if we get higher inflation readings. Therefore, high inflation readings may not change the outlook for monetary policy in the near term, but they will change the market's expectations at first and finally the Fed's expectations.
