CPI fades to ECB
The trading week ahead will most likely be defined by the balance between tomorrow’s US CPI release and Thursday’s ECB decision. Both are likely to contribute to setting the tone for any final year-end positioning and influence the path of respective central bank policies for the year ahead. First, a glance at US CPI expectations. The release is due at the usual 13:30 tomorrow and will see the publication of a host of inflation statistics.
Whilst none will be the Fed’s preferred measure, the most heavily observed amongst these will be Core CPI and headline CPI. Month-on-month (MoM) the Core figures to look out for are 0.3% MoM and annually 3.3%. Annual headline inflation holds a consensus forecast of 2.7%. Following a stronger than expected Non-Farm Payroll report last week, realising a beat of any of the figures quoted above is likely to support the US Dollar, questioning any potential policy action from the Fed next week.
The ECB’s latest monetary policy decision will take place on Thursday. Looking at the swaps market, the ECB’s expected policy path is far from straightforward. At the next two consecutive ECB meetings, slightly more than one 25-basis point adjustment is expected. However, the size of this misalignment is unconvincing to suggest a half point adjustment is due in either December or January (27bp and 30bp respectively). Therefore, even if the ECB delivers on its expected quarter-point cut this week, there will still be open market interest requiring adjustment that could exacerbate any FX flows.
Discussion and Analysis by Charles Porter
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