Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

US Dollar: A Week of Disinflation Tests

By ING Economic and Financial Analysis (Francesco Pesole)CurrenciesFeb 12, 2024 04:44AM ET
www.investing.com/analysis/us-dollar-a-week-of-disinflation-tests-200645972
US Dollar: A Week of Disinflation Tests
By ING Economic and Financial Analysis (Francesco Pesole)   |  Feb 12, 2024 04:44AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
EUR/USD
+0.31%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GBP/USD
+0.25%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
EUR/PLN
+0.14%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PLN/HUF
+0.34%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
EUR/HUF
+0.46%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
EUR/CZK
+0.07%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

CPI reports in the US and the UK will be in focus this week. We see a greater risk for a lower-than-expected number in the US even though our estimates match consensus, while UK services inflation and wage growth should remain sticky. The dollar is facing some downside risks this week, but EUR/USD volatility should remain capped

US: Waiting on the Inflation Catalyst

The US dollar index has eased back modestly over the past week after trading at its 2024 highest. The repricing of rate expectations following the hot US payroll figures has offered some continued support in the dips to the dollar: this week, the US CPI release (tomorrow) can be the new catalyst for larger positioning shifts in FX.

Our economics team’s estimates are aligned with the consensus for a 0.3% month-on-month core print, but we think the risks are skewed more towards a 0.2% than a 0.4% print. Accordingly, there are some downside risks for the dollar, even though our base case is for a consensus print to leave few marks on the FX market. Ultimately, investors may need to look elsewhere to fine-tune rate Federal Reserve rate expectations, which currently see a first-rate cut in June. A week retail sales print on Thursday may revamp expectations for a May rate cut, and take the dollar lower.

That said, evidence for the jobs market and the lack of faster disinflation should still be enough to discourage aggressive dollar selling. We remain comfortable with our call for some extra resilience in the dollar in the first quarter, before a clearer downtrend emerges from the second quarter.

Today, the US calendar is quiet data-wise. On the Fed front, there are speeches from Michelle Bowman, Thomas Barkin and Neel Kashkari.

EUR: Diverging ECB Comments

The number of comments by European Central Bank (ECB) officials has intensified in the past few days, and so has a divergence in views expressed by different members. Fabio Panetta, the most dovish voice in the Governing Council, endorsed rate cut expectations, saying that the time for monetary easing is “fast approaching”. That unsurprisingly differs from the latest remarks by Isabel Schnabel (a hawk), who warned against cutting too early, but also from more dovish members like Mario Centeno and Pablo Hernandez de Cos, who still seem to prefer caution over dovish guidance.

Despite some voiced unhappiness from doves like Panetta, consensus among policymakers appears to be favouring holding rates should at least until April’s European wage statistics. June looks increasingly likely as the starting date for monetary easing, and markets are also buying this view with increasing confidence. We agree with a June cut, but still think markets are overestimating the ECB’s easing cycle by around 40bp by December. Conversely, markets pricing for a 125bp of Fed cuts in 2024 seems too conservative (we expect 150bp). The convergence of US and EZ rates will – in our view – be the bigger driver of a EUR/USD rally by year-end.

In line with our dollar view, though, the holding pattern that EUR/USD has shown recently may well remain the norm in the coming weeks. US CPI will be the big highlight for the pair this week, while the eurozone calendar’s main release is tomorrow’s ZEW survey out of Germany. We see some modest downside risks for the dollar this week, and think EUR/USD can find some support back above 1.0800, although a return to the 1.093/1.0950 area looks premature. On the ECB side, keep an eye on Philip Lane’s speech today.

GBP: Data-Packed Week

The second-best performing currency after the USD of 2024, the pound, is about to face a couple of key data tests this week. Tomorrow, jobs data for January is released, and Wednesday sees the CPI report and Thursday GDP data.

Our economics team sees both wage growth and services inflation remaining sticky in the first quarter, meaning that the Bank of England will have no rush to turn to a more dovish communication in the near future. Markets are expecting the BoE to move with a delay (in August) compared to the ECB’s and Fed’s easing cycles. We agree, but also see 100bp (vs 80bp priced in) of cuts by year-end.

Some GBP weakness against the EUR down the road is, therefore, our base case, but the short-term outlook remains quite constructive for sterling.

CEE: GDP and CPI week in the Region

We have another busy week ahead of us in the CEE region. Today's calendar is basically empty but it will be more interesting in the coming days. Tomorrow we will see the decision of the National Bank of Romania where we expect rates to remain unchanged.

Then the current account for December in Poland, the Czech Republic and Romania will be published. On Wednesday we will see fourth quarter GDP in Poland, Hungary and Romania and industrial production in Romania. On Thursday, January inflation will be published in Poland and the Czech Republic. In both cases, we expect a result below market expectations. And on Friday, the Czech National Bank will publish the minutes of its February meeting when it cut rates by 50bp to 6.25%. As always, you can find all the numbers in our latest week ahead article.

Our pick last week was a higher PLN/HUF, which touched 90.00 for the first time ever on Friday. Still, PLN remains our favorite in the region due to hawkish central bank support and payers in the rates market. On the other hand positioning is clearly an issue here slowing more gains. A slow grind to 4.30 EUR/PLN is thus our scenario for this week.

EUR/HUF on the other hand is being pulled higher as the market puts the 100bp rate cut bets back on the table. Therefore, we see a fairly wide range for these days of 386-390. EUR/CZK has jumped to 25.20, the highest since early 2022, following the CNB's rates cut by 50bp. We expect some downward pressure on rates to persist in the market this week, especially due to the inflation print on Thursday. EUR/CZK could thus test 25.30. However, after that we think market pricing will hit a limit and it makes sense for us to think about fading this move in EUR/CZK.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

US Dollar: A Week of Disinflation Tests
 

Related Articles

US Dollar: A Week of Disinflation Tests

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email