On Wednesday February 28th, at 10:00am GMT (London time), the latest estimate for the Eurozone CPI (consumer price inflation) will be released. The forecast, obtained by taking a consensus opinion from many leading economists, predicts a fall to 1.2% YoY for February, from the 1.3% recorded up to January 2018. The monthly inflation figure for January (MoM) shocked markets, by coming in at -0.9%, after a 0.4% rise in December.
The figure will be eagerly anticipated by investors and traders, due to the various financial mainstream media conversations, in relation to the commitment the ECB have given to exit their APP (asset purchase scheme this year). According to the forward guidance Mario Draghi’s team delivered in 2017, the ECB intends to firstly taper the (version of quantitative easing) scheme more aggressively in the first three quarters of 2018, with a target to end the APP in Q4. There was also the suggestion, albeit more of a rumor, that the Eurozone central bank might even consider raising the interest rate, from its floor of 0.00%. However, there are two issues that might derail both targets.
Firstly, despite the APP scheme, CPI (inflation) has remained stubbornly low, with the ECB aiming for a target at or above 2%, the YoY figure has oscillated around a figure of 1.5% for several months, when the ECB were hoping/planning that the scheme would raise inflation. A higher interest rate cannot raise inflation, and whilst increased Q.E. can raise inflation, the ECB will be reluctant to do so.
Secondly, the ECB are apparently concerned that the value of the euro is too high versus the majority of its peers, particularly yen, U.S. dollar and the U.K. pound. Ending Q.E. and raising the interest rate would most likely increase the value of the euro. The ECB is impacted by the monetary policies of the other central banks, of the domestic currencies listed, it isn’t in control of its own destiny. Therefore there’s only certain tools it can use to moderate the value of the single bloc’s currency.
Should the CPI release either meet, beat, or miss the forecast, then the expectation is that the euro will react to the release due to the fact that inflation releases are regarded as hard data releases, that often impact on the value of the currency pertaining to the release. With that in mind currency traders (who specialize in euro pairs), should monitor their positions carefully.
KEY ECONOMIC METRICS RELEVANT TO THE CALENDAR EVENT.
• GDP YoY 2.7%.
• Interest rate 0.00%.
• Inflation rate 1.3%.
• Inflation rate monthly -0.9%.
• Jobless rate 8.7%.
• Debt v GDP 88.9%.
• Wage growth 1.6%.
