Anticipation Builds: Focus on CPI Data Ahead of Pivotal FED Decision

Focus on CPI data ahead of crucial FED decision this week

While the decision to maintain current interest rates appears highly probable, the primary focus of the market this week will be on Jerome Powell's upcoming speech as the Federal Reserve Chair has a significant opportunity to impact market sentiments by potentially signaling an end to the rate hike cycle. Nevertheless, such a development should not significantly alter investor expectations as it has been a wide topic of discussion for quite some time, however, a significant deviation from those expectations could lead to some noticeable impacts on USD and potentially even on risk assets.

 

Despite the gradual normalization of macroeconomic data, shifts are aligning favorably for the Fed as the labor market is also exhibiting signs of stabilization while inflation is clearly slowing down which has prompted investors to engage in speculation regarding the timing of potential rate cuts.

In this scenario, there is a potential for a boost in bond prices, accompanied by a concurrent reduction in yields as anticipation of a Fed pivot could drive capital accumulation in bonds, taking advantage of the prevailing, albeit high, interest rates. In either case, focus today will be on US CPI data ahead of tomorrow's FED decision and while it is unlikely that the data will change tomorrow's outcome, it could certainly have a short term impact on global markets.