Consumer prices exceeded expectations in January, rising a strong 0.6% MoM. In the view of economists at TD Securities, a strong CPI print will keep that 50bp hike for next month alive. That should leave the USD on its front-foot for now and, with EUR/USD at risk of re-testing 1.13.
“Another strong CPI report, with consumer prices exceeding expectations. Total/core prices rose 0.6% MoM each, above the 0.4%/0.5% consensus, respectively. The YoY pace reached new multi-decade highs at 7.5%/6.0% for headline and core CPI inflation, respectively.”
“The stronger than expected January CPI report increases the odds of a firmer monetary policy response by the Fed. We continue to expect the FOMC to raise rates by 25bp at its March meeting, but another solid print in February will likely encourage the Fed to accelerate the pace of hikes in 2022 and hasten both the timing and pace of balance sheet runoff.”
“The next ECB meeting comes a few days ahead of the Fed, which leaves us biased for a retest of 1.13 in EUR/USD, before looking for a more meaningful move topside. Meanwhile, we think USD/JPY is destined higher (118), especially with the BOJ still very far away from any sort of normalization this year. We expect this CPI print to place pressure in equities, and that will weigh on the antipodes.”
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