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 , 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 , 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
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4 itemsCEE & CCA week ahead: Inflation data from Poland and Czech GDP
The desk anticipates a notable uptick in inflation in Poland, pushing CPI above 4% YoY, which could activate market expectations for interest rate hikes. This expectation aligns with the impending release of CPI figures on Wednesday, where the cessation of the temporary VAT cut on fuels and rising crude oil prices are significant contributors to inflation. Per the full note [source], this shift in the inflation landscape positions Poland's economy well above the National Bank's target range, signifying potential policy adjustments in the near term. Additionally, Czech GDP data set to confirm the second-quarter figures may shed light on consumer behavior, particularly in relation to household consumption amidst supply chain concerns. Both developments will be closely monitored by traders for their implications on currency valuations.
Polish MPC remains patient and keeps policy rates on hold in October
Per the full note from ing-think, the National Bank of Poland kept its reference rate at 3.75% in October, and the desk argues this on-hold stance can persist for several months despite headline inflation rising. The MPC attributed the September uptick primarily to fuel prices while core inflation likely edged lower, and it introduced 'regulatory decisions concerning energy prices' as a new risk to the outlook. Analysts Rafal Benecki and Adam Antoniak frame the statement as broadly neutral with a mildly dovish tint, suggesting any tightening cycle would not arrive until 1Q27 — and would be less aggressive than markets currently price. No high-impact events are scheduled for Poland over the next 30 days, meaning the next real catalyst is Governor Glapinski's press conference and the evolution of regulated energy prices. Our internal coverage bundle contains no tracked currency pair for this commentary, so we have no consensus target or per-firm spread to anchor against.