As the market adjusts to the policy agenda presented by the President-elect of the United States, Donald Trump, traders are taking a cautious step in the face of inflationary pressures that may arise from his plans to impose tariffs as well as several key appointments in the new administration.
The Spot Dollar Index remained steady ahead of today's US consumer price inflation (CPI) report, with the market focused on signs that Trump's economic approach may intensify inflation dynamics in the coming months.
Following Trump's victory, expectations of higher inflation have prompted a revision of interest rate cut projections, with markets now expecting around two rate cuts by the Fed by June 2025.
However, traders remain cautious that the combination of tariff hikes and an "America First" policy that emphasizes trade and border controls has the potential to further increase inflation, making it harder for the Fed to implement rate cuts.
Treasury yields are also seen rising as investors brace for potential losses, with expectations that inflationary pressures will likely keep borrowing costs high.
Today's CPI report will provide an important insight into inflation trends, our observation at SARACEN MARKETS is that there was a 0.2% increase in the main Consumer Price Index for the fourth month in a row.
The continued increase in inflation has the potential to prompt the Federal Reserve to reconsider its easing strategy, particularly as Trump's economic policies begin to be implemented.
Market analysts are watching whether upcoming inflation data may influence the Fed's rate decision in December, with growing concerns over continued price growth.
As the Trump administration begins to take shape, markets are now in the process of reassessing the likely more inflationary economic environment and its impact on US Treasury yields and the overall outlook for monetary policy.
Traders are bracing for increased uncertainty as they assess the new administration's impact on the economic landscape, with inflation trends expected to be a determining factor for Fed policy in the near term.
