A big day coming up for markets

That will make for quite a blockbuster session later in US trading. In the first half, there is the US CPI report to react to. But one also has to consider the Fed policy decision when we get to the second half to any market reaction today. Fun times, eh?

Adam provided a good overview yesterday here: Preview: Eyes will be on every detail of the May CPI report

Looking at Fed odds coming into today, traders are pricing in ~40 bps of rate cuts for the year. The first full rate cut is only priced in for December, with odds for a November move seen at ~86%.

Essentially, the market has been bouncing between the idea of one to two rate cuts recently. And that will be the name of the game once again when trying to ping the reaction after the events today.

As for risks of undershooting or overshooting that, I would argue that we are closer to zero rate cuts for this year than we are to three rate cuts. So, that might argue for the inflation numbers to be more critical at the balance today.

That being said, the Fed’s dot plots will also come under heavy scrutiny. So, that might eventually outweigh the initial reaction to the inflation numbers early on.

This article was written by Justin Low at www.forexlive.com.