In recent economic developments, the U.S. is bracing for a potentially hot core Consumer Price Index (CPI) print, driven significantly by rising airline fares and car rental prices. This anticipation has sparked discussions among economists about its potential impact on the dollar and inflation concerns. Meanwhile, in the UK, the December CPI inflation fell below expectations, marking a year-over-year rate of 2.5% against an anticipated 2.7%. Eurozone market activities remain subdued with no significant data releases scheduled, while European Central Bank (ECB) members are set to speak. Additionally, the UK's bond market recovery is crucial to averting major foreign exchange (FX) sell-offs.
The U.S. economist highlights a notable increase in airline fares and car rental prices, contributing to expectations of a hot core CPI print. Such developments could renew support for the dollar as investors grow jittery over inflation concerns. Markets are already pricing in U.S. protectionism, albeit not a substantial universal tariff. Trump's economic advisers are reportedly drafting a plan to incrementally raise tariffs by 2-5% per month, which could exacerbate inflation fears.
In the UK, the December CPI inflation figures indicate persistent inflation risks, despite falling short of expectations at 2.5% year-on-year compared to the forecasted 2.7%. UK bond market recovery remains essential to prevent significant FX sell-offs, particularly as the market braces for another strong bond supply this year amidst ongoing policy uncertainty. The Services CPI also underperformed, coming in at 4.4% versus a consensus of 4.8%.
Eurozone's economic calendar lacks market-moving releases at present, although ECB members Philip Lane, Luis de Guindos, François Villeroy de Galhau, and Boris Vujčić are scheduled to speak soon. Their statements may provide insights into the ECB's stance on monetary policy and economic trends, potentially impacting market sentiment.
The EUR/GBP currency pair experienced positive momentum recently, attributed to the euro's strong performance. However, experts caution against premature optimism for a sterling rebound. The surprisingly mild U.S. Producer Price Index (PPI) inflation print resulted in some softness in the dollar, affecting market dynamics.
The 0.0% month-on-month core Producer Price Index (PPI) reading directly influences the December core Personal Consumption Expenditures (PCE), recognized as the Federal Reserve's preferred measure of inflation. This connection underscores the importance of monitoring PPI trends as they can shape monetary policy decisions.