Inflation has been one of the main reasons for central banks around the globe to start turning hawkish in recent months. The FED was the first to do so, accepting that inflation was running out of control in summer and announced in autumn that it would start reducing the QE stimulus purchasses and now markets are expecting three rate hikes from the FED during 2022, although there are some analysts who expect a hike in every meeting if inflation doesn’t cool off.

The first rate hike is expected to be in March, although there is uncertainty whether this will be a 25bps or 50bps rate hike. Again, inflation will decide that. Tomorrow’s CPI (consumer price index) inflation for January will show whether inflation is still keeping the pace, which I expect to be so. If that will be the case, then the USD will resume the uptrend again, after the sharp decline last week, which came as a result of the ECB (European Central Bank) and BOE (Bank of England) turning hawkish as well, again due to surging inflation.

The BLS delivered some benchmark revisions to CPI today, ahead of Thursday’s report for January. The changes were small, with December CPI rising to 0.6% from 0.5% month-on-month. The core December number was unrevised a 0.6%. But, this shows that there are no signs of inflation cooling off anytime soon.

The USD pairs have stalled in the forex market, waiting to see how inflation figures will come out tomorrow, while stock markets such as S&P500 have also been consolidating in the last few sessions, after some hectic price action in the last two months. We will wait and see too, how the numbers tomorrow will be and probably embark on USD longs if inflation keeps the pace.

EUR/USD Live Chart

Remarks by ECB policymaker, Pablo Hernandez de Cos

• Inflation risks are leaning towards the upside, especially in the short-term
• Recent inflation data has shown a surprising upwards trend
• There is still a lot of uncertainty surrounding inflation
• Policy changes must be progressive and data-driven
• In the medium-term, inflation is not likely to keep over 2%

Some token remarks there by de Cos. There are not many value-added takeaways as this just reaffirms similar sentiment after Lagarde’s press conference last week. But at least he’s not offering any pushback like what we heard from Kazaks and Knot yesterday.