Will the CPI and FOMC point in the same direction?

Yesterday was a great day for traders seeking volatility. The CPI data significantly increased momentum and created many interesting trading occasions. One could claim, though, that CPI was just an introduction to today’s FOMC and interest rate decision in the US.

As you might already know, CPI came worse than expected. On a yearly basis, the number was 7.1% vs 7.3% expected and 7.7% reported in the previous month. The market’s reaction was pretty straightforward, with a decline in the USD and rise in stocks. The mentioned makes sense, of course, as lower inflation means that the FED does not have to aggressively raise rates, which is bearish information for Dollar and a positive one for the stock market.

Among the major currencies, the Dollar was obviously the weakest one yesterday. The Canadian Dollar also ended up with losses. The strongest ones were again the currencies from the antipodes (AUD and NZD) and the Japanese Yen.

A weaker USD positively influenced the commodities, which should not be a shocker. Natural gas rose over 5% and oil gained 3%, allowing us to erase a big chunk of last week’s weakness. Precious metals were on the rise as well. Platinum rose 3%, silver 2,5%, and gold went up 1.8%. It is definitely worth noticing that gold marked the highest levels since the end of June.

In general, indices climbed higher but the initial reaction was much better than the final outcome. Buyers gave up some gains at the end, which definitely created doubt. Yes, the price made new mid-term highs on many indices but the question remains whether buyers will be able to hold it. In the early hours of the European session, futures are on the rise but, most probably, until the FOMC, volatility will be limited and traders will have to brace themselves for a wait-and-see approach.

Apart from the FOMC in today’s calendar, we already received CPI reading from the UK. The market was expecting 10.9%, which would be a decline from the previous month’s 11.1%. The final number was 10.7%, matching the recent worldwide trend. The initial reaction on the GBP is, of course, negative.

A few hours after the FOMC Press Conference, we will also learn the GDP data from New Zealand. A quarterly rise of 0.8% is the anticipated number here.