US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, recovered to 2.50% after a two-day downtrend by the end of Wednesday’s North American session. With this, the inflation gauge reverses the pullback from the highest levels since June 27.

It’s worth noting that the market’s latest fears of inflation took clues from the US activity numbers for July. Recently, US ISM Services PMI for July rose to 56.7 from 55.3 prior and the market expectation of 53.5. On the other hand, the Final reading of the US S&P Global Services PMI for July dropped to 47.3, marking the first contraction in two years, from 52.7 in June and the flash estimate of 47.

Given the firmer inflation expectations and the US Fed policymakers’ determination for higher rates, the market sentiment could fade the latest optimism amid fears of the Fed’s aggression amid the economic slowdown chatters. Also challenging the latest cautious optimism is the US-China tussles over Taiwan.

However, major attention will be given to Friday’s US Nonfarm Payrolls (NFP) for fresh impulses, which in turn keeps the traders on their toes ahead of the release.

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