Sunset Market Commentary - Forex | PriceONN
Markets ECB President Lagarde elaborated yesterday in her regular testimony before European parliament on the divergence between actual and perceived inflation. Inflation perceptions matter because they also influence inflation expectations. BoE governor Bailey earlier this week made a similar remark. By doing so, today’s monthly ECB Consumer Expectations Survey (January) drew some extra attention. On […] The post Sunset Market Commentary appeared first on .

European Inflation Dynamics

European Central Bank (ECB) President Christine Lagarde recently addressed the discrepancy between actual and perceived inflation during her testimony before the European Parliament. This divergence is significant as inflation perceptions can shape inflation expectations. Echoing this sentiment, Bank of England (BoE) Governor Andrew Bailey made similar observations earlier in the week, adding weight to the importance of consumer surveys.

The January ECB Consumer Expectations Survey revealed a slight decrease of 0.2 percentage points in both perceived inflation over the past 12 months and expectations for the next 12 months, settling at 3% and 2.6%, respectively. However, these figures remain elevated above the ECB's target of 2%. Longer-term expectations for inflation three years ahead remained stable at 2.6%, matching the highest level observed since March 2023. Recent inflation data from France (0.8% M/M & 1.1% Y/Y) and Spain (0.4% M/M & 2.5% Y/Y) exceeded forecasts, while German figures (0.4% M/M & 2% Y/Y) provided a partial offset. Eurozone aggregate numbers are due next Tuesday, with consensus estimates projecting a 0.4% M/M increase and the headline number steady at 1.7% Y/Y.

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US Producer Prices and Geopolitical Risks

In the United States, the Producer Price Index (PPI) emerged as a key economic indicator. Both headline and core PPI for January surpassed expectations, rising by 0.5% M/M and 0.8% M/M, respectively. Annual readings were reported at 2.9% (previously 3%) and 3.6% (previously 3.3%). Deflation in goods prices improved from -0.1% M/M in December to -0.3% M/M in January, a metric closely monitored by the Federal Reserve due to its connection with US trade policy. Conversely, services price inflation accelerated to 0.8% M/M, presenting a mixed picture for the central bank.

However, market attention was largely diverted by escalating geopolitical tensions. The US Embassy in Jerusalem authorized the departure of non-essential personnel and their families from Israel due to security concerns, following inconclusive nuclear talks between the US and Iran in Geneva. This action, coupled with the earlier withdrawal of personnel from Lebanon, heightened market sensitivity to potential US military intervention. Brent crude oil prices reached a new short-term peak at $73/bbl, while core bonds gained ground, with German and US yields declining by 1-4 bps across the curve. For the US, this translates to a test of key support levels at 3.4% for the 2-year yield and 4% for the 10-year yield. The trade-weighted dollar continues to encounter resistance around the 98 mark, with increasing likelihood of a breakout from an ascending triangle pattern. The Swiss franc demonstrated strong performance, benefiting from safe-haven demand.

Swiss Economic Outlook

The KOF Economic Institute's monthly barometer for the Swiss economy improved to 104.2 in February, signaling a positive outlook. The institute notes the barometer's sustained upward trend, remaining above its medium-term average, driven primarily by demand-side indicators such as consumption and foreign demand. The Swiss State Secretariat for Economic Affairs also released Q4 GDP data, revealing a 0.2% growth rate, adjusted for sporting events, following a 0.4% decline in the previous quarter. This growth was primarily fueled by domestic demand, with private consumption rising by 0.4%. Furthermore, construction investment (+1%) and equipment investment also experienced notable growth. Goods exports increased by 0.6%, while imports rose by 2.7%.

The Swiss franc experienced a sharp appreciation today, with EUR/CHF falling below 0.91, a historically strong level. This movement was likely driven by safe-haven flows amid Middle East tensions rather than solely by Swiss economic data.

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