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Dollar May Rise as Panic Strikes the Markets on US Inflation Data

Dollar May Rise as Panic Strikes the Markets on US Inflation Data

2018-02-14 04:34:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Euro may fall if fourth-quarter German GDP figures disappoint
  • Strong US CPI may trigger risk aversion, send US Dollar higher
  • NZ Dollar up on RBNZ inflation survey, Yen higher as stocks fall

Fourth-quarter German GDP figures headline the economic calendar in European hours. They are expected to show that growth slowed, with output in the Eurozone’s top economy adding 0.6 percent. That is down from the 0.8 percent gain in the prior period. A revised set of analogous data for the entire currency bloc is seen confirming flash forecasts showing a mild slowdown in the last three months of the year.

Broadly speaking, realized Eurozone data outcomes have increasingly deteriorated relative to consensus forecasts in recent months. That opens the door for a downside surprise that cools bets on a further reduction of ECB stimulus in the near-term. The priced-in 2018 policy path has drifted toward in the dovish direction since mid-January and a soft print may encourage more of the same, punishing the Euro.

Later in the day, the spotlight turns to the US CPI report. Economist expect headline and core price growth to tick down. Survey data warns of an upside surprise however, echoing the surge in wage inflation reported in January’s labor-market statistics. Such an outcome is likely to send the US Dollar higher against a backdrop of violent risk aversion as fears of an aggressive Fed tightening cycle multiply.

The New Zealand Dollar outperformed in overnight trade, launching upward against all of its G10 FX counterparts after an RBNZ survey showed businesses’ two-year inflation expectation rose to 2.11 percent in the first quarter, the highest since the three months to June 2017. The Yen also pushed higher as Japanese stocks declined, boosting demand for the anti-risk currency.

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Asia Pacific Trading Session

Dollar May Rise as Panic Strikes the Markets on US Inflation Data

European Trading Session

Dollar May Rise as Panic Strikes the Markets on US Inflation Data

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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