Morning Brief – An inflation focussed week

Charles Porter
Tue 14 May 2024

An inflation focussed week

The name of the game in markets currently still revolves around deciding how the respective paths of monetary policy easing will look across the globe. The hot forecast is therefore how inflation should be expected to be recorded amongst nations and currency areas. Given the importance of inflation statistics in deciding how central banks will adjust policy, this week will provide markets with plenty of data to examine and therefore create the potential for volatility. Despite FX volatility falling once again, position adjustment in the face of such data could be prompted.

Within the Eurozone we have already seen this morning the final April inflation rate published in Germany. France and Italy will also see April inflation figures finalised in publications in the coming days ahead of the Euro area as a whole which will be published on Friday. Whilst markets have already seen preliminary estimates of this data, any adjustments remain possible and could shape the inflation outlook for Europe. Later on today, April’s producer price index data will be observed in the US. Typically PPI has a greater influence in the US versus the rest of the world based upon its more significant correlation with the Fed’s preferred measure of inflation, the PCE deflator.

Should PPI data being observed today not be enough, for good measure we will see consumer price index inflation published tomorrow. Amidst a slew of Fed speak and other central bank figures this week, there is at least significant opportunity for FX movement. Particularly within the US, a dovish Federal Reserve appears eager to start the easing cycle discussion but so far lacks the data to do so. Any weakness amidst its data publications today or tomorrow would likely produce further selling pressure towards a higher fair value in EURUSD. 

Discussion and Analysis by Charles Porter

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