The currency market is in stagnation while waiting for today's publication of important data on the US consumer inflation, which will either confirm the Fed's rhetoric that the inflationary surge is naturally local or not.

Based on the presented forecast, American consumer inflation should be adjusted from 5.0% to 4.9% in annual terms, and as for the monthly terms in June, its growth is expected to fall to 0.5% from 06% a month earlier. On the contrary, core consumer inflation may rise to 4.0% from 3.8% year-on-year, while it may decline from 0.7% in May to 0.4% in June.

How can a greater increase in inflation or, conversely, a noticeable decrease in it affect the dynamics of the US dollar?

Given that the consumer inflation data, primarily the basic one, slow down, this will be a good signal for investors in the stock and bond markets. This is primarily due to the fact that the Fed's insistence on maintaining the country's economy for a long time, with an ultra-soft monetary rate, is a positive factor for the demand for company shares. In addition, the current rate is positive for the interest of investors investing in the American public debt. Therefore, we believe that if the values of the basic consumer inflation turn out to be lower than expected – this will provoke a new wave of speculative growth of stock indices in the US and in the world as a whole.

This dynamic is primarily due to the fact that the US regulator may delay the discussion that the super-soft monetary policy era can be postponed until better times.

How will the US dollar react to the published inflation data?

Taking into account the current market mood, we believe that it will come under pressure if the values of the core consumer inflation noticeably decline below the forecast. This is due to the fact that the Fed is unlikely to raise interest rates in the near future, which will cause market players to lose interest in the US currency.

But if we consider the option of rising inflationary pressure, this will cause a backlash in the markets – a sale of company shares, an increase in the yield of Treasuries, and an increase in the US dollar exchange rate.

Forecast of the day:

The EUR/USD pair is trading below the level of 1.1880, practically not moving in anticipation of the inflation data from the US. We believe that a decline in US inflation will locally support the pair and it will rush to the level of 1.1965.

The forecast for the XAU/USD pair remains unchanged. It is above the support level of 1797.00, actually moving in a narrow range of 1797-1811.00. We believe that gold's price will rise amid lower inflation to 1821.00, with a prospective growth to 1837.00.