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The disclosure of the protocol of the Federal Reserve September meeting revealed once again the dependence of the increase in interest rates on the dynamics of inflation in the United States.
The minutes of the meeting of the Central Bank revealed the desire of the regulator to continue raising the cost of borrowing. However, it is still contained the fact that for this purpose that inflation should be revived and continue growing until the target level of 2.0% is reached. The promulgated document showed that doubts exist on the account of the bank and did not diminished anywhere else. Again, this shows that all the "hawkish" fears that inflation can still slow down growth are present. This is the main reason for sales of the US dollar in the previous week before the release of data on inflation.
Today, the values of the producer price index for September will be published. It is expected that in monthly terms inflation jumped by 0.4%, and in annual terms, it increased from 2.4% to 2.5%, even if the market has not reacted in any way to the data on production inflation in recent years. Instead, it focuses on the advice of the Fed to the consumers and the positive values of the indicator which would at least be in line with the forecast. This would not only stop the weakening of the dollar but stabilize it and support locally.
The Fed waiting for positive values of inflation indicators has long been known. This was repeatedly said by many members of the Fed voting at the moment saying yes and no. On Wednesday, his views on the need to continue the gradual rate increase were once again stated by the President of the Federal Reserve Bank of Kansas City Esther George who said, "waiting for reliable evidence of inflation growth to 2%, before taking new steps to tighten the policy, will create risks overheating of the economy, financial instability, and, possibly, provoke undesirable acceleration of inflation. " Moreover, the President of the FRB San Francisco John Williams again reiterated the need to continue a gradual increase in interest rates. Only Fed member Charles Evans who is the head of the Federal Reserve Bank of Chicago, once again said that he was "worried" by a steadily low inflation.
Against this background, the US dollar remains under pressure this morning. However, if the data on production and consumer inflation are no worse than forecasts, everything can change today and tomorrow.
Forecast of the day:
The EUR/USD pair has been trading above 1.1870 in a wave of expectations that the ECB will decide on its meeting in October to reduce the volume of purchases of government bonds. At the same time, it aims to schedule the end the stimulus program for the economies in the euro area and could result in the weakening of the dollar before the release of data on inflation in the U.S. On this wave, the pair can either fall to 1.1825 due to positive data or, conversely move upward to 1.1935 if they are bad.
The AUD/USD pair may also grow because of the weak data from the U.S. and either move towards 0.7870 or strongly decline towards 0.7740 level.
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