The US Dollar is showing some weakness
The US Dollar is showing some weakness during early Tuesday trading, as investors position themselves before the release of inflation data later in the day. The consensus amongst analysts is that year-on-year inflation for August, expected to reach 4.2%, will ease modestly compared to the July number of 4.3%. Even if this prediction materialises the number is still well above the Federal Reserve’s target of 2% and would in normal circumstances entail the tightening of policies by the central bank in the not-too-distant future. However, we are not living through normal times and with the advance of the Delta variant in the US, the Fed remains concerned over the growth prospects for the American economy. Against such a background, prospects for the dollar remain closely linked to inflation; should this month’s figures surprise to the upside, the central bank will find it increasingly difficult to further delay the announcement of tapering, and the greenback would be likely to find strong support. However, if inflation starts easing off, strengthening the argument that the price rises seen in the second quarter of the year are transitory, then the dollar would be likely to lose ground on other major currencies such as the euro.
Ricardo Evangelista – Senior analyst, ActivTrades
EUROPEAN SHARES: INFLATION DAY
European stocks edged slightly higher before correcting shortly after Thursday’s opening bell amid an uncertain trading sentiment ahead of key inflation data from the US. While many expect today’s data to show increasing price pressure in August, the next move from the Fed remains uncertain. Of course, surging inflation would demonstrate the rise in prices that started in Q2 wasn’t as “transitory” as the FOMC had earlier said and would logically bring the prospect of tapering closer than initially thought. However, a growing number of market operators now think the Fed cannot afford to proceed with such measures, especially as the Delta variant continues to dent the ongoing recovery and after a new threatening virus variant has been discovered in Africa (C.1.2). That said, the Fed will still have to take action to mitigate the risk of inflation surging, raising the prospect of a rate hike announcement rather than a formal tapering or reduced stimulus. Meanwhile, market volatility is likely to stay flat before inflation data, except for financial and energy shares as renewed appetite for crude oil is lifting those sectors up.
Pierre Veyret– Technical analyst, ActivTrades
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of futures performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk