US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, eases to 2.41% on Thursday, easing from a fortnight high marked on Wednesday.
Even so, the inflation gauge remains near the 10-week high, suggesting firmer price pressure in the world’s largest economy.
It’s worth noting that the latest readings of the Consumer Price Index (CPI) and Producer Price Index (PPI) flashed mixed readings for July.
Hence, the FRED suggests that the market players remain concerned about the pipe inflation heating irrespective of the latest statistics.
This in turn suggests the monetary policy adjustments at the Federal Reserve (Fed) as the majority of the Fed policymakers have already favored tapering in their recent speeches. Federal Reserve Bank of San Francisco President Mary C. Daly, Dallas Fed President Robert Kaplan and Richmond Fed President Thomas Barkin were among them.
As the reflation and tapering fears firm, the US 10-year Treasury yields and the US Dollar Index (DXY) also stay strong and weigh on commodities as well as Antipodeans.
It should be noted that the Delta covid variant woes do challenge the dialing back of easy money while vaccine optimism backs the policy hawks.
Hence, market players are modestly optimistic but the confusion over Fed’s next moves keeps the greenback on the upper hand.
Looking forward, traders should keep their eyes on the risk catalysts for fresh impulse whereas the US Michigan Consumer Sentiment Index for August, expected to remain unchanged near 81.2, will offer additional clues to watch.
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