US INFLATION EXPECTATIONS REMAIN WEAK AS MARKETS BRACE FOR FED MEETING

Having witnessed immense volatility in the last few days, the global markets portray the much-needed inaction while depicting the traders’ cautious mood ahead of the next week’s Federal Open Market Committee (FOMC) monetary policy meeting. Even so, the recently downbeat US inflation expectations and financial market turmoil seem to favor the risk-on mood while also probing the US Dollar.

It should, however, be noted that the Fed fund futures recently bolster the case of the US central bank’s 0.25% rate hike in the next week’s FOMC.

That said, the US inflation expectations per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) remain pressured around the multi-day low and challenge the policy hawks, as well as the US Dollar bulls, of late.

The 10-year breakeven from the FRED data dropped to a fresh six-week low of 2.22% by the end of Thursday’s North American trading session during a two-day downtrend. However, the two-year counterpart revisits the week-start of 2.26%, previously poked in early February, while dropping for the second consecutive day.

To confirm the latest weakness in the US inflation expectations, the traders might wait for Friday’s UoM 5-year Consumer Inflation Expectations for March, 2.9% prior, which in turn could confirm the Fed’s 0.25% rate hike and propel the US Dollar in case of upbeat readings.