On Monday, trading in the currency markets was fairly calm. The past G7 summit did not introduce any adjustments to D. Trump to the decision on new customs. , He left the meeting before everyone else. The markets seem already expected this, so there was no noticeable reaction in the United States on Tuesday. And on Wednesday, the outcome of the meeting of the American regulator is awaited.
The G7 summit showed that the US under the current administration will follow only its narrow selfish economic interests and allied relations have nothing to do with it. After the summit, Trump went to prepare for a meeting with North Korean leader Kim Jong-un. In our view, this will not be the major event of the week, but the publication of fresh data on US inflation, the results of the Fed meetings and the ECB on monetary policy. And the first will be more interesting than the second.
According to the consensus forecast, the overall consumer inflation in annual terms should grow by 2.8% against 2.5%. In May, the indicator could add 0.2%, thus keeping the previous April growth rate. The base consumer price index (CPI) on an annualized basis will add 2.2% against 2.1%, and its May value will grow by 0.2% against the April increase of 0.1%.
Estimating the expected data, we can say that if they do not disappoint, then this will be a strong reason for the Fed not only to raise interest rates by 0.25% on the meeting result, but also to signal if the inflationary pressures will continue, as well as the process of increasing the borrowing cost. This may manifest itself in a general rise in the average level of interest rates in the updated forecast of the regulator and expectations, for example, the fourth rate increase in the current year.
In the wake of this scenario, the dollar will have to strengthen its attack in the currency markets, despite the fact that raising borrowing costs by the next quarter of a percentage point has already been accounted for in quotes. Making the dollar grow higher can only be a clear increase in the average level of interest rates by the US Federal Reserve, which will undoubtedly become the basis for strengthening the positions of the US currency in the markets.
Forecast of the day:
The EUR/USD pair is trading below 1.1820, remaining in the short-term uptrend. The price may attempt to overcome this mark on the will of low activity of market players before the Fed meeting and the release of inflation figures. If this happen, the pair may grow to 1.1900.
The GBP/USD pair can also get support, following the euro. The positive data on the volume of production in the UK manufacturing industry can be a good additional support for the pair. Overcoming the level of 1.3440 can become the basis for the local growth of the pair to 1.3500.
* The presented market analysis is informative and does not constitute a guide to the transaction.
