Podcast: Inflation – A revival we never wanted
At a Glance
Lead — The commentary from Nordea highlights the unprecedented inflationary pressures stemming from various global events, particularly the supply shocks triggered by Russia's invasion of Ukraine. Per the full note , central banks have struggled to achieve their inflation targets, often resorting to extreme measures without significant success. The desk believes that traders should prepare for continued volatility as inflation remains a central theme affecting monetary policy and market dynamics. With no upcoming high-impact events on the calendar, market focus is likely to remain on inflation trends and their implications for interest rates.
Key Takeaways
- 01Recent inflation spikes largely tied to supply shocks from geopolitical events.
- 02Central banks face ongoing challenges as previous inflation strategies have proven ineffective.
- 03Traders should prepare for a volatile market amidst persistent inflation concerns.
- 04Inflation remains the primary driver of interest rate changes and economic expectations.
Full Analysis
What the desk is arguing
The desk argues that inflation, exacerbated by geopolitical tensions and supply shocks, will cause ongoing challenges for central banks and financial markets. Per the full note , inflation rates spiked following the outbreak of the conflict in Ukraine, creating a scenario that central banks had struggled to control over the preceding decade.
Elevated inflation has already prompted shifts in central bank policies, and this trajectory suggests continued scrutiny by traders. With central banks previously lowering rates to stimulate growth, the new inflationary reality poses risks of tightening that can disrupt previously anticipated monetary policies.
Where it sits in our coverage
Current consensus targets for the EUR/USD pair are centered around a target of 1.075, with the following firm forecasts: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view, reflective of a tightening inflation narrative, aligns closely with jpmorgan at the upper end of the spread, indicating anticipation of further strength in the Euro against the Dollar in response to ongoing inflation pressures.
How other firms see it
Firms aligned with the desk's perspective, such as jpmorgan, foresee a stronger Euro due to inflationary pressures prompting policy changes. Conversely, bofa exhibits a more cautious stance, predicting a weaker Euro influenced by ongoing inflation but sustained economic robustness in other regions.
Watch for movements in the EUR/USD as it reflects not only inflation but also the evolving monetary policy landscape amid rising global tensions and their economic repercussions.
Market Implications
Traders should watch the EUR/USD as it reflects the broader inflation narrative and central bank responses. Key levels to monitor include resistance at 1.075, with possible implications for adjustments in monetary policy based on inflation trends.
From the original
Nordea On Your Mind Podcast: Inflation – A revival we never wanted 07-02-2023 The Nordea On Your Mind team takes a deep dive into inflation in their latest podcast. Central banks have struggled for a decade with extreme measures as shock therapy to push inflation even close to ty
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