Key points:

  • The minutes of the ECB meeting will probably show a cautious position of the bank regarding the forecast of stimulating the economy
  • The US Treasury will auction 30-year bonds worth 12 billion; The demand will dispel or reinforce doubts about inflationary expectations for the US economy.
  • Data on US inflation on Friday will provide food for thought about the Fed’s position on tightening policy in 2018.
  • The speech of the President of the Federal Reserve Bank of New York, Dudley, will provide additional information on the increase in rates in 2018.
  • Earnings report of JPMorgan Chase & Co. and Wells Fargo & Co. will become an indirect indicator of the health of banking sector, stirring a corresponding activity in the stock exchange.

The US currency is supported by the bonds selloff and rising yields in the absence of other key drivers of growth. Oil prices and BoJ step to halve purchases of JGB are explanatory factors in the sale of US sovereign debt. The first one influences inflation expectations, the second one is a general signal that the main buyers, i.e. central banks cut their activity in the fixed-income market. Rumors that China reduced purchases of US bonds were not confirmed, as the respective department issued a refutation, pointing to an “incorrect source.”

The medium-term outlook for the Dollar remains bearish, but traders are waiting for the ECB’s protocol as well as US consumer inflation figures on Friday to adjust positions. Wage growth dynamics strangely remain unsatisfactory along with employment at peak the NFP report showed, the inflationary impetus after natural disasters have exhausted itself as the catalyst. The dollar has been weakly devalued since the release of previous data on inflation, so it has peripheral meaning for CPI. The rise in oil prices has a direct effect on inflationary expectations, but the recent pace of the rally is likely to be insufficient to regard energy as the main factor in the growth of consumer prices. Hence, it can be assumed that the CPI data at best will match with expectations.

As for the ECB protocol, it is pointless to pin hopes on it. The best thing the ECB can do for inflation now is to prevent the development of deterrents, i. e. strengthening of the Euro. Of course, the ECB is going to taper off the policy, but each time it will fall back to soft rhetoric with a minimal bullish effect for the Euro. Therefore, the data from the protocol is likely to have a moderate effect on the European currency, the chances of the bullish spike are low.

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