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Roses are Red, Violets are Blue, We’re Watching Inflation, and You Should Too

Happy inflation day to all of you hopeless romantics out there.

The Bureau of Labor Statistics is set to release its consumer price index for January at 8:30 am. Economists think price growth will cool for a seventh consecutive month, with the headline measure increasing 6.2% year-over-year, down from 6.5% in December, and well below the 9.1% pace hit in June. The core measure is seen rising 5.4%, maintaining the prior month’s momentum.

Markets seem comfortable with these expectations. Signs of nervousness disappeared over yesterday’s session, leaving equity futures up, Treasury yields down, and the dollar on the defensive.

But we wouldn’t break out the chocolates just yet: the so-called “supercore” inflation measure—core service prices excluding shelter—looks likely to remain stubbornly high as household income and demand levels keep growing.

The Japanese economy expanded at an annualized 0.6% pace in the final three months of 2022. This was far slower than markets had anticipated – but domestic consumption levels improved and inventories fell, putting the pieces in place for a modest rebound in the first quarter. Output expanded 1.1% last year.

Confirming earlier reports, the government formally nominated Kazuo Ueda to become the next governor of the Bank of Japan. Ueda is understood to be relatively centrist, with a smooth transition expected as previous governor Haruhiko Kuroda‘s unprecedentedly-loose monetary easing policies are gradually unwound in years ahead.

The pound climbed this morning after new data showed wages rising more quickly than expected, solidifying the odds on another rate increase at the Bank of England’s next meeting. The Office for National Statistics said average earnings excluding bonuses rose 6.7% in fourth quarter 2022 from the previous year, the fastest pace since the current series began in 2001. Markets almost-universally expect another 25 basis point move befo

Today’s data cupboard is otherwise bare, but four Fed officials—Thomas Barkin, Lorie Logan, Patrick Harker, and John Williams—are scheduled to speak, potentially helping markets add nuance to this morning’s inflation report.

Bloomberg says the White House is poised to appoint current Fed Vice Chair Lael Brainard as Director of the National Economic Council, removing one of the most dovish voices on the central bank’s rate-setting committee. The implications for monetary policy settings should be somewhat limited—the Fed is moving toward a pause anyway—but Brainard has played a critical role in guiding communication strategy, helping alleviate market turbulence as rates have climbed.

Risk Appetite Surges After Soft Inflation Data
US Inflation Eases, Supporting Rate Cut Expectations
Dollar Retreats Ahead of Inflation Print
Will the US CPI jolt markets?
Markets Hold Firm After Cautious Fedspeak
AUD/NZD - Diverging macro fundamentals

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