EUR may tumble if inflation dips, Fed to hold first rate decision of the year

Philip McHugh January 31st 2018 - 2 minute read

  • Slide in inflation likely to weaken EUR
  • Canadian GDP forecast to rise
  • Fed to hold first policy meeting of 2018

Eurozone inflation expected to dip

The euro is poised to tumble later this morning as the Eurozone publishes its latest CPI figures.

Economists expect the data will show that headline inflation across the bloc dipped from 1.4% to 1.3% in January, striking its lowest levels since July.

However the euro may be prevented from sliding if core inflation proves to be a little more resilient.

In fact some analysts have even predicted core inflation could tick up from 0.9% to 1% this month, something which could prompt the single currency to appreciate.

Low Inflation remain a major concern for the European Central Bank (ECB) so any hints that price pressure may be easing again will likely decrease the odds of the bank seeking to tighten its monetary policy anytime in the foreseeable future.

Rise in Canadian GDP likely to strengthen CAD

CAD may strengthen in trade this afternoon, following the release of Canada’s latest GDP figures.

Analysts predict that the Canadian economy will have expanded 0.4% in November after remaining flat in October.

Should GDP fall in line with expectations this will be the fastest pace of growth in Canada since May and likely to bolster the Canadian Dollar.

Should growth, however, miss expectations then CAD is likely to tumble as it dents hopes of further rate hikes from the Bank of Canada (BoC).

USD Investors Await Fed Meeting

The Federal Reserve will hold its first policy meeting of the year later this afternoon, hopefully giving USD investors a better idea of what US monetary policy will look like in 2018.

Today’s rate decision is Janet Yellen’s final meeting as Chair and it’s highly unlikely that the bank will vote to make an alterations to its current policy just before the reins are handed over to incoming Fed Chair Jerome Powell next month.

Instead the focus is likely to be on the bank’s outlook for the coming year and whether it plans to stick to its forecast of three rates hikes again in 2018.

Recent comments from policymakers suggest the bank may have been too hasty in dismissing the Republican tax cuts in December. If this leads to a more hawkish outlook it is likely to strengthen the US Dollar.

On the other hand USD could slide if policymakers continue to express concerns over the stubbornly low US inflation rate.

Upcoming Data 

Wednesday, 31 January, 2018
10:00                     EUR Inflation   
13:30                     CAD GDP
19:00                     USD Fed Rate Decision  

Written by
Philip McHugh

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