Published on 14.03.2023 13:52

After racking up 3 straight days of solid gains against the US dollar, the Euro has run into some strong resistance at the 1.0720 mark as market participants awit the release of the latest inflation figures from the US.

The consumer price index from the US is expected to show headline inflation rose 0.4% last month, or 6% from the prior year, according to analysts’ expectations. That compares to a 0.5% gain in January, and an annual rate of 6.4%. Core inflation, excluding food and energy, is expected to be higher by 0.4% and the yearly growth is expected to hit the market at 5.5%.

Until recently, any CPI figures released to the upside would have increased expectations that the Federal Reserve could boost the size of its next interest rate hike to 50 basis points from the quarter point it implemented in February. But now, with markets more worried about bank failures and the threat to the economy overall, there are some who doubt the Fed will even stick with a quarter point hike when it meets March 21 and 22 and may decide to leave rates on hold.

Silicon Valley Bank on Friday became the biggest US lender to fail in more than a decade just days after Silvergate Capital Corp. announced it was shutting its bank. Then on Sunday, New York state financial regulators seized Signature Bank. The collapses led the Fed to launch a new emergency program to backstop banks. So now inflation is no longer top of mind for investors.

Some analysts however believe the distraction to the economy caused by bank failures is only temporary and the issue with sky high inflation will soon be back on the US Federal Reserve’s radar. This will cause the US central bank hike rates further and once again lend support to the greenback.

“The Fed is likely to stay the course with further hikes. Perhaps there is a slowdown, or a pause sooner, but I do not think the Fed is done or that a hike is off the books, no matter how CPI comes in,” said Sylvia Jablonski, CEO and CIO at Defiance ETFs,