Daily digest market movers: Pound Sterling to remain volatile ahead of US CPI, Fed’s decision
- The Pound Sterling is slightly firm against the US Dollar ahead of the United States (US) Consumer Price Index (CPI) data for May and the Federal Reserve’s (Fed) monetary policy announcement in the New York session. The inflation data will significantly influence market expectations about when and how far the Fed will reduce interest rates this year. Recently, stronger-than-projected employment creation and wage growth have already diminished expectations for the Fed to begin lowering key borrowing rates from the September meeting.
- Annual core inflation, which strips off volatile food and energy prices, is estimated to have decelerated to 3.5% from April’s reading of 3.6%. In the same period, the headline inflation is expected to have grown steadily by 3.4%. While monthly headline inflation is forecasted to have grown at a slower pace of 0.1% from the former release of 0.3%, the core CPI is estimated to have maintained a steady growth rate of 0.3%.
- Volatility is expected to be high in Wednesday’s American session as the US inflation data will be followed by Fed’s monetary policy decision. The Fed is widely anticipated to leave rates unchanged at current levels of 5.25%-5.50%. Therefore, investors will pay close attention to Fed’s dot plot, which indicates where policymakers see the federal fund rate heading in medium and long-term time frames.
- Recent economic data suggests that labor market conditions are tight and price pressures are still high, so Fed policymakers are expected to be more hawkish compared with the last dot plot. Officials are expected to argue in favor of at most two rate cuts this year against three projected in March’s dot plot.
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