Pre-storm calm
On Thursday, global markets witnessed a state of stability and anticipation, as the US dollar stabilized against a basket of major currencies, while the euro maintained its balance ahead of an important ECB meeting.
This relative calm comes as investors are waiting for two very important events: the US inflation data (Consumer Price Index), which will be released at 3:30 pm Egypt time, and before it the ECB decision on interest rates, which will be at 3:15 pm Egypt time.
All eyes on inflation data
The US CPI data has become the most influential stop in market trends, as traders are urgently looking for it for decisive clues about the future course of the Fed's monetary policy.
These forecasts came after unexpectedly low producer price data on Wednesday reinforced investors conviction that the US central bank is on the cusp of cutting interest rates at its meeting scheduled for next week.
What do the markets expect from the Fed?
The market is no longer wondering whether the Fed will cut interest rates, but how much this reduction will be:
Almost 100% probability of a reduction of at least 25 basis points.
Traders keep in mind the probability (at 8.9%) of a significant reduction of 50 basis points.
The main goal is to find sufficient reasons to re-price the cut forecast and push the US dollar down after a period of its continuous strength.
The decision of the European Central Bank
On the other side of the eurozone, the European Central Bank is widely expected to keep interest rates unchanged at its meeting today.
However, the focus will be more on the tone of future guidance, and analysts expect policymakers to adopt a more pessimistic and cautious tone to counter the lackluster economic outlook and the tense political climate prevailing on the European continent.
The focus will also be on President Christine Lagarde during the press conference following the central bank meeting.
Any signal about the timing and pace of the start of the monetary easing cycle in the eurozone may shake the currency markets and set the direction of EUR/USD for the upcoming sessions, on a day full of indicators and pivotal decisions.
