THINK Ahead: The calm before the CPI
At a Glance
The desk anticipates that upcoming U.S. CPI data will reinforce market expectations of a prolonged Federal Reserve pause, driven by anticipated month-on-month declines in headline inflation due to falling gasoline prices. Per the full note source, while softer inflation metrics in Poland reduce the likelihood of immediate rate hikes from the National Bank of Poland (NBP), the Czech economy shows signs of resilience, suggesting a stable outlook. The potential for a Fed pause aligns with lower borrowing costs, positioning traders for continued dollar weakness, especially leading into the significant CPI print on July 14.
Key Takeaways
Full Analysis
What the desk is arguing
The desk believes that U.S. inflation data will bolster the case for a sustained pause by the Federal Reserve, reflecting market sentiment around a sluggish rate hike trajectory. As detailed in the piece source, this comes after a muted jobs report and the expected CPI release indicating a month-on-month drop due to plummeting gasoline prices, which could further diminish the Fed's appetite for rate increases.
Supporting this view, the upcoming ISM Services PMI release and fresh trade balance data are unlikely to disrupt the prevailing narrative, with forecasts suggesting that services remain robust, aligning with moderate GDP growth. Additionally, data on existing home sales is expected to confirm the housing market's struggles due to affordability issues exacerbated by high mortgage rates.
Where it sits in our coverage
Our consensus target for USD/EUR is currently 1.075, with a range of 1.04 to 1.12. Notable projections include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
Given the desk's position is set towards the higher spectrum of expected outcomes, it reflects a viewpoint that aligns with jpmorgan's more optimistic outlook, contrasting with the bearish stance from bofa.
How other firms see it
Several firms echo the desk's sentiment regarding a possible Fed pause, with jpmorgan and goldman anticipating stable rates ahead. Conversely, bofa and rbc present a divergent outlook, suggesting the possibility of continued tightening dependent on economic indicators.
Positions in USD/EUR closely mirror sentiments tied to the Fed's monetary policy trajectory, specifically the CPI influences on Fed actions, making these dynamics critical for traders ahead of the CPI print.
Market Implications
Traders should focus on the USD/EUR reaction to the upcoming CPI data for further insights into Fed policy direction. Levels around 1.075 serve as key thresholds, especially leading into the CPI print on July 14, which could sway sentiment significantly.
From the original
Articles THINK Ahead: The calm before the CPI 10:45 Czech Republic Poland Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download US data is unlikely to derail expectations of a prolonged Fed pause ahead of next week's CPI release. Meanwhile, Poland's central
Related speeches
4 itemsEnergy shock lifts Polish inflation, but weak demand curbs broader pressure
The desk interprets the latest commentary on Polish inflation dynamics as an indication of restrained price pressures in the face of rising energy costs. Per the full note from ing-think, while inflation is projected to rise due to energy shocks, weak demand coupled with stagnating wage growth and employment is likely to prevent a more pronounced inflationary spiral. This paints a picture where the National Bank of Poland may be inclined to maintain its current stance, avoiding aggressive monetary interventions for the time being. Notably, the broader economic backdrop suggests that the consumer demand dynamics will play a crucial role in shaping inflation trends going forward.
Polish inflation returns to the central bank’s target in June
Recent data indicates a noteworthy shift in Polish inflation dynamics, as CPI fell to 2.5% in June, aligning with the National Bank of Poland's target. This marks a continued trend of lower inflation, with food prices contributing significantly to the decrease, as highlighted in the note from ING. The desk interprets this as a strong indicator that the NBP is unlikely to hike rates in the near term, which may lead to speculation around potential rate cuts later in 2026. Per the full note [source], the combination of declining fuel costs and a notable drop in food prices has allowed inflation to stabilize effectively after previous fluctuations.