On Monday, global markets took a pause after declining last week. Stock indexes partially recovered, while the US dollar gained strength and stabilized in anticipation of the publication of new data on America's consumer inflation.

Can yesterday's partial recovery of positive mood in the markets be considered the beginning of a local reversal, followed by an increase in demand for risky assets, which will be accompanied by a weakening of the US currency? We believe that it is still too early to talk about this. The observed pullback is most likely the desire of investors to take a wait-and-see position before the publication of important economic data on consumer inflation in the US, which will undoubtedly have a noticeable impact on world markets.

According to the presented forecast, the core inflation in monthly terms should maintain a growth rate of 0.3%. The year-on-year value is adjusted from 4.3% to 4.2%. The overall value of consumer inflation may fall from 5.4% to 5.3% in annual terms, and from 0.5 % to 0.4% in monthly terms.

How will the markets react to the published economic statistics?

If the values of consumer inflation turn out to be even slightly below the expected, this will give an incentive to the growth of demand for company shares, especially since the previous weekly decline provides such opportunities. In view of this, the US dollar will be under pressure, as the markets may consider that a slowdown in the rate of inflation growth will allow the Fed to not be so radical about a possible change in the monetary rate. In other words, the regulator may act in much the same way as the ECB did at its meeting last week – to make it clear that the reduction in asset purchases will begin, but will be carried out with high caution. If this is really the case, it will be a strong incentive to resume the growth of stock indices, not only in the US, but also in the world as a whole.

Such a decision will indefinitely postpone the likelihood of a tightening of monetary policy, which will largely lead to the restoration of positive market sentiment.

Should a strong fall in the dollar exchange rate be expected in this situation? It can be, but it will most likely be limited. Since the prospects for a change in the monetary rate are still present, they can simply be postponed.

Forecast of the day:

The EUR/USD pair is trading around the level of 1.1820. Its breakdown amid a possible decline in US inflation will allow the pair to further rise to 1.1900.

The GBP/USD pair may also find support and rise to the level of 1.3945 after consolidating above 1.3850.