The US Consumer Price Index report and the Bank of Canada's decision on interest rates are the two main events of the day.
- We are waiting today at 4: 45 pm Egypt time for the Canadian interest rate decision and expectations indicate a reduction of 50 basis points from 3.75% to 3.25%, and Canada has already reduced interest rates by 125 basis points during this session so far.
- On the other hand, this whole week revolves around the US Consumer Price Index, which is released at 3:30 pm Egypt time, and although there are other decisions of central banks, this report is one of the most important reports in several months and the market reaction is likely to be great, so please be careful.
The US Consumer Price Index is expected to reach 2.7% year-on-year compared to 2.6% previously, while the monthly measure is expected to reach 0.2% compared to 0.2% previously, and the core consumer price index is also expected to reach 3.3% year-on-year compared to 3.3% previously, while the monthly reading is expected to be 0.3% as it was the previous month.
The dollar index also remained bullish on Wednesday, for the fourth consecutive day of gains.
Markets predict an 86% probability of an interest rate cut at the Fed meeting next week and at least two more cuts of 25 basis points in 2025.
If the data comes in lower than expected, this should strengthen the current market expectations and may add more to the pricing of 2025, in which case we are likely to see a sell-off in the US dollar, a rise in bonds and risky assets.
As for the stronger-than-expected inflation reading, the market is likely to lower expectations of a further interest rate cut for 2025, delaying the Fed's plans to reduce borrowing costs, and this may provoke some risk aversion as the US dollar rises widely against most currencies and the sale of risky assets.
And in the end, barring any major surprises, I don't see that this would really change the prospects and expectations of the Fed next week, as it is considered the last chance for the Fed to sneak in another rate cut before Trump takes office who is pressuring the Fed not to cut interest.
