Blockbuster Week Continues

USD - Crunch Time

Whilst unlikely to sway the Fed in its upcoming rate decision, US core and headline inflation figures will likely set the tone for the Feds, and by extension, the USAs 2023. YoY, the figures are expected to show a rate of inflation increase at 7.3%, high, but a drop from the previous months 7.7%. Should this forecast be correct, it could mean that the Fed will halt all rate rises after its February meeting, when it reaches its self-predicted 5% terminal rate. This would open the door to a dovish Fed pivot in mid 2023, with the inflation rate close to 5% by then, although this is a speculative situation that assumes no external supply shocks and a gradual, predictable fall in inflation.

*Fed Two-Year Historical Interest Rate Source: FRED Database

And this is a dubious proposition, not only because of the events over the last year, there is also the question of how quickly the core inflation rate will decline, rather than the headline. As the global energy crisis cools and supply chains gradually, very gradually, recover and reestablish headline inflation is bound to fall. But the core inflation rate, excluding these more volatile considerations, may prove a tougher nut to crack as wage inflation pressure continues to boil away and consumers show no sign of cutting expenditure. 
Only time can tell, but today's releases will hint at the kind of environment we can expect in 2023.

EUR- Wince worthy Reading

Alternatively, German inflation figures released today could sway the still tightlipped ECB going into its interest rate decision on Thursday. Economic sentiment data released for the wider Eurozone today could also be at the forefront of the ECBs mind as central banks around the world balance restraining inflation with deteriorating economies. Data releases today have a strong potential to move markets as the ECB still seems to be on the fence regarding the size of their impending rate hike.

Today's Economic Calendar

Major Economic Releases

•    7:00 German MoM & YoY Inflation Figures & UK Employment Change Figures
•    10:00 Eurozone & German Consumer Sentiment Indexes
•    13:30 Core and Headline Inflation Figures

Markets This Morning

Rates correct as of 7:30am GMT

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