Bold statement: US inflation isn’t about to derail markets, but the story behind the numbers still matters for what comes next. And this is where the nuance often gets missed... Here’s a clear, beginner-friendly rewrite of the latest FX daily snapshot, preserving all key facts while expanding a bit for clarity and context.
FX overview
- The recent tech weakness has helped the dollar by nudging investors to seek safety, giving the greenback a bit of upside protection. At the same time, the USD trades cheap against most G10 peers, yet mid-term bearish sentiment could still push traders to sell into rallies. The CPI release today is expected to align with the consensus view.
USD: modestly firmer bias
- Today’s US CPI release is perceived to have a smaller market impact than the prior week’s payrolls data. The Fed has signaled limited urgency to cut rates again, so the jobs market remains the main driver of any surprise. Inflation in January is not expected to surprise. We anticipate a 0.3% month-on-month and 2.5% year-on-year print for both headline and core CPI, consistent with the consensus. This aligns with the latest hawkish reassessment of Fed policy, reinforcing a view that the dollar has become short-term undervalued.
- That undervaluation suggests the balance of risks could tilt higher for the dollar in the near term. Yet, price action this week shows a tendency to sell USD rallies, making a substantial rebound from current levels less likely.
- A somewhat reassuring sign for the dollar is the half-hearted reaction to the recent tech-driven selloff, which hints that some safe-haven demand might be re-emerging.
Francesco Pesole
EUR: ECB neutral stance keeps rate expectations steady
- The euro area calendar features a second read of Q4 GDP, expected to show a 0.3% quarterly rise. Market impact is expected to be minimal.
- On the ECB side, Vice President Luis de Guindos will speak. Other policymakers’ remarks have largely flown under the radar, with little dissent against the prevailing neutral stance. There has been little follow-up on the euro’s strength after the last meeting, reinforcing the sense that rate expectations should remain unchanged for the time being.
- The short-term fair value of EUR/USD has dropped to around 1.165 after the dollar’s hawkish repricing, widening the overvaluation gap. In line with the USD view above, we don’t expect that gap to close quickly, even though downside risks for the pair persist.
Francesco Pesole
NOK: NOK strength supported by domestic rates
- The Norwegian krone enjoyed a strong week before yesterday’s equity pullback, driven in part by a jump in January CPI that led markets to push out the prospect of a rate cut by Norges Bank this year. We view that as premature because inflation tends to be volatile; if next month’s data revisits around 3.0%, a summer rate cut could re-emerge as the baseline.
- From an FX perspective, turning decisively against NOK’s strength isn’t straightforward yet. While EUR/SEK looks inexpensive, our short-term valuation model shows EUR/NOK at fair value due to hawkish NOK pricing. A truly meaningful pullback in NOK would likely require a dovish trigger, potentially awaiting February CPI data.
- In the meantime, if risk appetite stabilizes, NOK could find support from its attractive yield profile. We continue to prefer NOK over SEK in the near term.
Francesco Pesole
CEE region: Rate-cut expectations in play
- Following yesterday’s softer inflation print in Hungary, which opens the door to rate cuts at the February meeting, and Turkey’s inflation data suggesting further cuts are possible, focus shifts to Poland and the Czech Republic.
- Poland: January inflation is expected to slide from 2.4% to about 1.9% year-over-year, aligning with market forecasts. Historically, Poland has shown the largest downward surprises in Central/Eastern Europe, which raises the possibility of a downside surprise today as well. After recent remarks from the National Bank of Poland, a March cut to 3.75% seems likely unless today’s data shows a notable upside surprise.
- Czech Republic: January inflation details will reveal the health of inflation in sensitive categories. Market attention will also likely linger on the Czech National Bank minutes. The central bank held rates at 3.50% but signaled openness to future cuts if core inflation cools. The minutes could provide more detail and support a dovish pricing scenario, countering the market’s premature discounting of cuts after January numbers.
- EUR/HUF and EUR/CZK: The EUR/HUF rally faded after weaker inflation yesterday, with the trend likely to persist ahead of elections as traders push new long HUF positions. In two weeks, NBH rate-cut expectations could test the forint, but subdued market pricing suggests limited pressure. EUR/CZK has bounced as rate-cut pricing returns; today’s minutes could reinforce this and lift EUR/CZK toward 24.300.
Frantisek Taborsky
Content disclaimer
- This ING publication is for information purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. It reflects the authors’ views at the time of writing and is not a tailored financial recommendation.
Authors
- Francesco Pesole
- Frantisek Taborsky
Question to readers
What is your take on this dynamic: if US inflation stays on its expected track, should traders push for more dollar strength due to the Fed’s hawkish tilt, or does current risk sentiment warrant caution in assuming a continued USD rally? Share your thoughts in the comments.
