Inflation data in the US today
It was relatively uneventful in FX markets yesterday with the main currency pairs ending little changed from Wednesday’s closing levels. It may be that they are treading water ahead of today’s CPI data in the US, though given the (largely) non-response to the much stronger than expected US jobs report earlier in the week, it might take an ‘off the charts’ inflation reading to move them to any great extent! In any case, ahead of the data, the euro and sterling are trading at about $1.1860 and $1.3620 against the dollar respectively while EURGBP continues to hover around the £0.87 level.
A sharp sell-off in equity markets together with some weaker than expected economic data out of the US – the number of new jobless claimants fell by less than forecast last week and second-hand home fell by more than forecast in January – contributed to a 6-7bps decline in US government bond yields, while German and UK yields were both marginally lower on the day (they are edging down again at the open this morning). The Nasdaq led a decline in US stocks, shedding 2%, while the S&P was off 1.6%. European indices fell by around half a percent and are on track to outperform their US peers this week, as indeed they have done in 2026 to date.
Bank of England MPC member Breeden, who dissented in favour of a 25bps reduction in interest rates at this month’s monetary policy meeting, says she “wasn’t confident that we’re going to see a pickup in (economic) activity and so I thought it was appropriate for us to provide a bit more support for the economy,“ adding that “it’s reasonable to expect there to be a (rate) cut over the next couple of meetings.” The market sees a circa 70% chance of a quarter-point cut at next month’s meeting and is more or less fully priced for such an outcome at the following meeting in April.
ECB Governing Council member Makhlouf says he is “not ruling out” a further reduction in interest rates, nor is he “ruling out the possibility that interest rates could also go up”, which clearly indicates a neutral monetary policy stance. He notes that “at the moment it does look as if inflation is on track to deliver our (2%) target,” hence interest rates are currently “in a good place.”
As indicated, the main economic data release today is the January CPI report in the US. The consensus expects both headline and core consumer prices to have risen by 0.3% last month (versus December), while would push the annual rates of inflation down to 2.5% for both, from 2.7% and 2.6% respectively in December. Euro area data due include a 1st estimate of employment growth, and a 2nd estimate of GDP growth, in Q4 2025 (the initial GDP estimate showed the economy expanded by 0.3% q-o-q, ahead of expectations). On the centra bank front, BoE MPC member Pill and ECB Vice-President de Guindos are scheduled to speak during the course of the day.