Inflation dominates, as eyes turn to US core PCE release

• Mixed messages from eurozone inflation data
• JPY on the rise after hawkish BoJ comments
• Markets await core PCE inflation report

European markets are on the rise in early trade, feeding off a raft of inflation data points that has seen declines across French, Spanish, and regional German inflation metrics. However, there will be concern in the fact that we have seen monthly inflation pick up steam, with February’s 0.8% rise in French CPI representing the highest monthly gain in six-months. All eyes now turn to tomorrows broad eurozone inflation report, with the expected slump in both headline and core CPI likely to feed into the narrative that we could soon see the ECB pivot towards a more dovish stance in anticipation of a June rate cut.

The Japanese Yen has enjoyed a rare day in the limelight, with the currency leading the pack in the wake of comments from BoJ member Takata that appeared to pave the way for a rate hike in the coming months. While the BoJ have been waiting for evidence that wage growth will remain elevated, Takata highlighted a need for a new course for monetary policy that would include an exit from negative rates. While the potential tightening of ultra-loose monetary policy could benefit the yen over the near-term, it is worthwhile noting that any such move would likely be limited in nature.

Markets will be waiting patiently for this afternoon’s release of US core PC inflation data as market look for fresh guidance on whether we will see the Federal Reserve retain their patient approach to interest rates going forward. The pathway for a move back down to the 2% target across headline and core CPI looks unconvincing, and thus this core PCE metric provides the most likely source of a justification for the June rate cut currently being priced in by markets.