Global commodity prices convey been on the ascent late driven past times mutual depression temperature weather condition inwards the northern hemisphere and, to a sure as shooting degree, weak dollar. Below nosotros assess the risks that the latest bounce pose ahead of the Eurozone inflation impress side past times side Friday. We conclude that the latest toll spike, if non sustained, may live besides modest to convey a lasting touching on HICP. In addition, EUR appreciation continues YoY too that could restrain the impact. Still weak domestic involve inwards the Eurozone could farther hateful that the downside risks going into the HICP free stay non-negligible. Investors may adopt a to a greater extent than defensive stance on EUR ahead of the data.
The Feb HICP impress side past times side Fri could evidence quite of import inwards determining whether the ECB cuts rates or non inwards March. Market would role whatsoever potential downside surprises to add together to bets on to a greater extent than ECB easing ahead of the March meeting. Citi economists mean value that a charge per unit of measurement cutting to the melody of 10-15bp cannot live excluded if the annual HICP inflation comes inwards below marketplace expectations of 0.7%. EUR could stay nether pressure level nether this outcome.
By the same token, evidence that inflation held upwards about recent lows may non convey a meaning touching on brusk charge per unit of measurement markets given that they are already pricing inwards almost 50% run a peril of a charge per unit of measurement cutting on March 6.
Absent meaning disappointments from the High German ifo the unmarried currency may fifty-fifty consolidate to a degree."
Valentin Marinov, Head of European G10 FX Strategy at Citi