Stubborn US inflation warrants maintaining high interest rates

The economic calendar in the Eurozone will be fairly calm today. But there shall be quite a few major economic data during the week, namely GDP, CPI and PMI which will help the market to gauge whether the ECB will cut rates in September. ECB Policymakers have highlighted that the next policy move in September will be data dependent. It is true that so far projections are showing a decline in inflation and several ECB policymakers are of the view that September will be the right time to take a decision, having enough time to evaluate incoming data. Core CPI is expected to fall from 2.9% to 2.8% on an annual basis. The fibre is currently trading at 1.0860.

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Last Friday, core PCE which is the Fed’s favourite inflation gauge revealed that inflation excluding energy and food items, rose by 0.2% in June on a monthly basis and that yearly core PCE grew to 2.6%. Persistent inflation should support the Federal Reserve’s perspective about maintaining high interest rates to tackle inflation. The FOMC due this Wednesday is expected to take such a stance despite various encouraging comments from Fed policymakers. The Dallas Fed manufacturing index and the 3 and 6-month bill auctions shall be taking place today. The greenback is currently trading at 104.23 against similar majors at the time of writing.