FX Week Ahead - Top 5 Events: China, Mexico, & US Inflation Data; Fed Speeches; UK GDP

02/09 TUESDAY | 12:00 GMT | MXN INFLATION RATE (JAN)

On Tuesday, the January Mexican inflation rate (CPI) is expected to show an uptick from +3.15% to +3.46% (y/y). Higher inflation may help cool some of the dovish talk at the margins around Banxico in recent months, which in turn could help the Peso continue last week’s run of strength. Recall that at the end of 2020, Mexican President Andres Manual Lopez Obrador nominated Galia Borja Gomez, the Treasurer of the Mexican Finance Ministry, to join Banxico has deputy governor. Historically, Banxico has had a hawkish tilt, but Mexican Treasurer Gomez has dovish leanings.

02/10 WEDNESDAY | 01:30 GMT | CNY INFLATION RATE (JAN)

As ground zero for the outbreak, the Chinese economy was hit by the coronavirus pandemic earlier and harder than its developed counterparts in Asia, Europe, or North America. To this end, the big drop off in economic activity is leading to a base effect in some data, inflation included (this base effect is due to arrive in the rest of Asia, Europe, and North America over the coming months). The People’s Bank of China may thus look through any spike in the inflation figures that would, in an otherwise normal environment, suggest that a reduction in monetary support might be considered.

02/10 WEDNESDAY | 13:30 GMT | USD INFLATION RATE (JAN)

The January US inflation (CPI) report will be released on Wednesday, February 10 at 13:30 GMT. According to a Bloomberg News survey, further stabilization in price pressures is anticipated with the headline inflation rate due in at +1.5% from +1.6% (y/y) in December, while core inflation is due in at +1.5% from +1.4%. Marginally weaker price pressures may not do much to move the needle on Federal Reserve monetary policy, as FOMC officials have tamped down any preliminary taper talk. But we'll soon learn how resilient of a position the Fed has staked out, as the likely impact of a base effect could drive headline inflation higher to and through +2% over the coming months.

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