USD: US CPI will remain below 2%, but it is the profile that matters.
All eyes are on the speech of the US January CPI and Federal Reserve Chairman Jerome Powell, considering the emphasis on the theme of reflation and the prospects of the US economy's potential overheating. At 1.6 percent year-on-year, CPI should remain subdued. However, with a sharp acceleration forecast in the second quarter and US CPI spiking to 3.8 percent in May, it is the profile that matters. On the above, though questions are growing as to whether, given the inflation and growth outlooks, the Fed signals a too loose policy set up, Chair Powell is likely to remain cautious today and not deviate from the message of the last FOMC meeting. As US real rates remain profoundly negative, the mix of clear upside price pressures, the risk of overshoot and CPI staying higher for longer, along with a cautious Fed sticking to its Average Inflation Targeting framework to make up for past inflation undershoots, should lead to a lower USD.
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