ECB Expected to Hike by 25bps in 2022, as Inflation and GDP Keep the Pace
Inflation has been increasing in Europe as well, following the surge in the US, with the CPI there increasing above 7% by the end of last year. The large amounts of money that have been thrown into the markets by central banks and governments around the globe during the last two years to help combat the effects of the coronavirus restrictions, have helped a lot to keep the GDP positive, as today’s figures from the Eurozone showed, but the huge amount of cash is also making inflation surge. That is hurting the consumer in the US and Europe, and they have been feeling the weight of higher prices, because in some sectors, inflation is much higher – closer to 30%.
EUR/USD H4 Chart
German CPI Prelim Inflation Data for January 2021
- MoM: 0.4% (Forecast -0.2%, Previous 0.5%)
- YoY: 4.9% (Forecast 4.4%, Previous 5.3%)
HICP:
- MoM: 0.9% (Forecast 0%, Previous 0.3%)
- YoY: 5.1% (Forecast 4.3%, Previous 5.7%)
German January inflation data coming in stronger than expected after a mixed bag on the regional numbers.
EU Flash Prelim January GDP Data
- QoQ: 0.3% (Forecast 0.4%, Previous 2.2%)
- YoY: 4.6% (Forecast 4.6%, Previous 3.9%)
This GDP data will be revised, and to a large extent, it is out of date. As I mentioned above, the economic growth looks pretty strong but it is not going to the public, which is a bit of a problem, considering that inflation is surging, which will cause imbalance in the near future. So, right now, the focus is on inflation metrics, given the policy shifts by Central Banks.
Now Eurozone Money Market are pricing in more than a full probability of a 10 bps rate hike by the ECB by September, and another one of 25 bps by December. In line with this hawkish repricing, Germany’s 10-year yield has extended its rise – it is now up 6 bps on the day, in the biggest daily rise since December 8.
EUR/USD Live Chart
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