Software’s hard pricing
The desk posits that despite the expectation of globally consistent pricing for software products, significant regional price disparities persist, particularly reflecting inflation trends in the U.S. versus Europe. According to UBS's commentary, software prices in the U.S. surged by 25%, contrasting with declines observed in European markets. This trend may suggest differing consumer behavior and market sentiments, particularly concerning how consumers in the U.S. are reacting to inflationary pressures in technology sectors, as highlighted in the full note by UBS's Chief Economist, Paul Donovan. As traders look toward upcoming data and broader economic indicators, this divergence in pricing may impact currency valuations linked to tech performance and consumer sentiment.
What the desk is arguing
The desk's interpretation is that while software should theoretically trade as a uniform commodity in the global market, actual pricing reflects significant regional inflation differences. Per the full note from Paul Donovan at UBS, software prices in the U.S. are experiencing substantial increases, outperforming other economies where prices are stabilizing or declining.
Supporting evidence includes the observation that U.S. consumer prices for 'software and accessories' are up over 25%, making this one of the core goods experiencing high inflation in the U.S. compared to a trend of falling prices in key European markets. This data underscores a nuanced understanding of inflation that goes beyond traditional sectors and highlights the complexities inherent in digital goods pricing.
Where it sits in our coverage
Our current consensus target for the EUR/USD pair is 1.075, with a range of 1.04 to 1.12. The following firms provide relevant targets for December 2026: - jpmorgan: 1.10 - bofa: 1.04
The desk's view aligns with jpmorgan, suggesting a stronger outlook within the upper bounds of the forecast range, while diverging from bofa, which is more conservative.
How other firms see it
Firms such as jpmorgan express similarly positive sentiments regarding software's pricing trends, while bofa reflects concern about pricing sustainability. This division can lead to divergent expectations on inflation's impact on the broader economy and, by extension, currency values.
Watch for developments in EUR/USD as this relationship unfolds, particularly in connection to U.S. inflation metrics and performance indicators in the tech sector, which are critical given their influence on market perceptions of both inflation and consumer confidence.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01U.S. software prices soaring by 25% signal inflationary pressures, contrasting with declines in Europe.
- 02Regional variations in pricing highlight broader economic disparities in response to inflation.
- 03Traders should monitor EUR/USD dynamics based on evolving U.S. inflation data.
- 04Consumer sentiment in the tech sector will play a crucial role in upcoming currency valuations.
Market implications
Traders should closely monitor the EUR/USD level at 1.075, as shifts in U.S. inflationary data could prompt volatility in this pair. The positioning of U.S. technology stocks against European markets may serve as a barometer for currency investments going forward.
Risks to this view
A reversal in the current pricing trends would be invalidated if European software prices began to rise sharply, or if U.S. inflation data eased significantly, impacting the inflow of capital into U.S. tech stocks and altering currency valuations accordingly.
Software should behave as a global, commoditized product in the digital age, but regional inflation differences persist. View this email in a web browser Software’s hard pricing UBS Weekly Blog by Paul Donovan Shockingly, before ascending to the heights of social sophistication associated with being economist, I was a geek. I remember spending months searching through computer stores for a disk of the computer game “Elite.” When I finally came across a copy, the retailer could have charged what they liked, as scarcity of local physical supply met insatiable demand.
Modern software pricing should be global in concept. Physical purchases in-person from a store are an archaic idea. The virtual nature of software with online purchase implies a commoditization, with little regional variation in pricing.
In reality, significant price difference persist. US “software and accessories” consumer prices rose over 25% in the past year, making it one of the very few US core goods prices experiencing high and accelerating inflation. But software prices in Europe and the UK are still falling.
The US data includes accessories like memory drives, which are separated in other economies’ data. While memory drives have rising inflation, it is not enough to account for all of the price difference. Currency effects can contribute too, but not enough.
It might be that the costs of AI are more prominently discussed in the US, leaving the US consumer more tolerant of price increases that are not acceptable internationally. Read more 〉 Read important disclaimer 〉 Recommended content Nobel Perspectives - Exploring the questions that shape our world 〉 Women in Economics – Explore the work of influential thinkers 〉 You have received this email because you registered at . Unsubscribe #end --> | Edit profile Publication data: UBS AG, P.O.
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