US inflation: Investors focused on data – Dollar, indexes, and cryptocurrencies are in the spotlight

Today, one of the most important events of the day seems to be the publication of inflation data in the United States. It may have an impact on the Federal Reserve's further actions and before that on investors' expectations of those actions. As a result, the US dollar, stock market indices, commodities or cryptocurrencies may react equally to the US data reading.

The market consensus is for US inflation to fall to 8.1% in August, down from 8.5%in July. The market seems to be counting on a deceleration in inflation, which may be reflected in the recent behaviour of the dollar or stock market indices. The U.S. currency seems to have been losing value for the past few days, while indexes seem to have rallied. Data from the Federal Reserve Bank of New York's Microeconomic Data Center may also show a potential peak in U.S. inflation.

Monday's report showed that inflation expectations in the United States have declined further across all time horizons. The median one-year inflation expectations fell to 5.7% in August from 6.2% in July, while the median three-year inflation outlook declined to 2.8% in the aforementioned period from 3.2% recorded a month earlier. In addition, the median five-year inflation expectations fell to 2% in August, down from the 2.3% recorded in July.

Is USD weakness only temporary?

According to HSBC, the euro's recent rally against the dollar may be driven by the closing of previous short positions rather than a change in fundamental factors. As a result, the euro may come under pressure again, HSBC's Paul Mackel told Bloomberg TV. He added that the outlook for EUR/USD comes down to which central bank can actually deliver rate hikes. "The ECB is talking very hawkish, but will it be able to meet market expectations for rate hikes? We would oppose it."

In contrast, according to a Credit Agricole CIB analyst quoted by Bloomberg, the dollar is in retreat ahead of the CPI reading from the US, but also because the EUR is getting a boost from more positive sentiment regarding the Ukraine crisis. He added that the currency market seems to be positioning for a lower CPI reading from the US.