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Summary

International Week Ahead

• Japan Q4 GDP: Growth Rebound to Keep BoJ Hikes in Play • (02/16)
• Canada January CPI: Noisy Headline and Cooling Core to Give BoC Breathing Room • (02/17)
• Brazil December Activity: Year-end Momentum to Influence Early ’26 BCB Policy • (02/19)
• Banxico February Meeting Minutes: Cryptic Communications, but Perhaps Minutes Clear the Smoke? • (02/19)

G10

Japan Q4 GDP • Monday

Growth Rebound to Keep BoJ Hikes in Play

While both we and consensus expect a rebound in Q4-2025 following the quarter-over-quarter annualized 2.3% contraction in Q3, we forecast a milder recovery of 1.2% versus 1.6% for consensus. The contraction in Q3 was driven largely by weaker net exports after shipments were pulled forward into Q2 ahead of anticipated U.S. tariffs. With tariffs lowered in July 2025, the drag from net exports should ease and turn supportive, while January trade data points to continued strength in global semiconductor demand, underpinning exports. Domestically, business sentiment has improved, as shown in the Bank of Japan's (BoJ) Q4 Tankan survey, which should translate into firmer business investment. Additionally, the front-loading of construction and residential investment ahead of new environmental regulations introduced in Q2 should also have faded, supporting a broader improvement in investment. Taken together, stronger exports and higher investment should be sufficient to drive a rebound in Q4 growth. A return to growth would keep BoJ rate hikes in play, though the broader policy backdrop warrants caution. The Takaichi administration’s recent landslide victory has revived concerns around expansionary fiscal policy, contributing to upward pressure on yields and pushing 10-year JGBs to historical highs. However, if new debt issuance is avoided, as the administration has indicated, the policy rate may not need to rise as much as markets currently expect. The BoJ is likely to proceed cautiously as it assesses fiscal developments and waits for clearer evidence of wage-price firming, particularly with inflation expected to cool further in data to be released next week due to government energy subsidies and stabilizing food prices. We maintain our base case for a 25 bps rate hike by Q3-2026, bringing the policy rate to 1.00%.

Canada January CPI • Tuesday

Noisy Headline and Cooling Core to Give BoC Breathing Room

We expect headline inflation to rise in Canada to 2.5% in January from 2.4% in the previous month as base effects peak. Base effects reflect the lowering of prices between December 2024 and February 2025 because of the temporary GST/HST holiday. Elsewhere, measures of underlying inflation such as the trimmed and weighted median inflation are likely to decline to 2.5% year-over-year and 2.4%, respectively, from 2.7% and 2.5% in December. The temporary rise in year-over-year headline inflation is likely to keep the market and consensus baseline view for an on hold Bank of Canada (BoC) intact near-term. We believe these base effects are worth about 0.6-0.8 percentage points and imply a substantial stepdown in inflation as early as the February report. It’s notable that underlying inflation as suggested by the 3m average of trimmed and weighted median inflation are running at 1.45% and 1.85% respectively vs. 6m averages around 2%. We believe headline inflation is likely to step down to below 2% as soon the February report (1.8% per our nowcast). As such, the macro narrative is likely to shift from the noise of elevated headline inflation to cooling underlying core inflation. This, combined with sub-trend growth, economic slack and downside risks to growth from continued trade uncertainty with the US, we see greater room for the BoC to cut rates than hike. Current policy rate at 2.25% is within the range of neutral rate estimates (2.25-3.25) for an economy that is likely undergoing a structural transition with more to come as USMCA negotiations continue. On the flip side, a faster rollout of fiscal stimulus is likely to contain downside risks and reduce the need for deeper rate cuts.

EMs

Brazil December Activity • Thursday

Year-end Momentum to Influence Early ’26 BCB Policy

The December activity index is likely to show Brazil’s economy lost steam at the end of last year. Uber-restrictive monetary policy settings and limited fiscal stimulus as well as pre-holiday spending rolling off should push the activity index lower relative to the prior month. We will be attentive to the activity index as data will fill in the rest of the economic story for Q4 as well as how Brazil’s economy performed for all of 2025. But more importantly, the December activity index will act as the last major gauge of activity that Brazilian Central Bank (BCB) policymakers will be able to assess before meeting in March. Inflation takes precedence for the BCB, but policymakers have committed to cutting interest rates at the March Copom with the only outstanding question being how aggressive policymakers want to lower the Selic Rate. December activity could play a more influential role this time around as recent commentary from BCB policymakers leave the door open to move gradually with a 25 bps cut or remove monetary policy restriction quicker by starting with a 50 bps rate reduction. For us, we believe policymakers will opt for caution and deliver a 25 bps cut, but we could be swayed toward a 50 bps cut come March if activity is especially weak. Right now, markets lean only slightly toward the BCB lowering the Selic Rate by 50 bps, so the activity index could reinforce calls for a larger move or dial back near-term easing expectations. We hold a less dovish view on BCB monetary policy for all of 2026, which also means a more rapid pace of easing to start the year would also force us to recalibrate our YE-26 Selic Rate forecast.

Banxico February Meeting Minutes • Thursday

Cryptic Communications, but Perhaps Minutes Clear the Smoke?

Central bank meeting minutes rarely offer a ton of new insight into future interest rate decisions. Minutes are backward-looking and do not reveal which policymaker said what, a dynamic which is especially true for Banxico. As such, we do not expect anything groundbreaking to come out of February Banxico minutes, but the official statement as well as post-meeting communications are sending mixed messages and creating more smoke than clearing the fog. Maybe Banxico minutes next week will offer clarity? Again, skeptical, especially after policymakers left rates on hold earlier this month, told markets keeping rates unchanged may prove to be a “pause” in the easing cycle, all while revising their inflation forecasts sharply higher. Adding a bit more confusion to the mix are Banxico Deputy Jonathan Heath’s recent comments to a local bank. Heath appeared to shred Banxico’s inflation forecasts as unrealistic (again) this time going so far as to say “almost nobody believes that not only are we not going to meet the goal for Q2-2027, but not even in the next four, five or ten years.” He did, however, mention that if inflation evolves in line with Banxico’s inflation target, which has again been revised higher, a majority of members could opt to vote for a rate reduction at the next meeting in March. At least based on how Banxico framed its latest official statement, that appears to be the message it is sending to markets, according to Heath. If policymakers are willing to accept higher inflation, why not just cut in January? Why “pause.” Why bury any kind of guidance in a podcast? Confused? Us too. Markets seem to be pricing more Banxico easing after Heath’s comments, which we believe is a mistake. Banxico may wind up cutting in March, but for now, we are sticking with our view that Banxico will hold rates steady at its next meeting and keep rates on hold for all of 2026. Minutes may offer some insight, but either way, we expect Banxico to communicate again with markets ahead of the March meeting.

Summary

U.S. Week in Review:

• Stronger labor market data and cooler inflation reduce the odds of near-term Fed easing. Job growth surprised to the upside (+130K), unemployment fell (4.3%) and recent hiring looks more stable than in outright deterioration—strengthening the Fed's case to stay on hold. At the same time, CPI cooled more than expected with the annual rate on core inflation touching its lowest in nearly five years (2.5%), reinforcing the disinflation trend and keeping the door open to cuts later in the year. The latest data suggest a March rate cut looks increasingly unlikely, but the prospects for additional rate cuts remains alive for later in the year.

U.S. Week Ahead:

• December Trade Balance (Thursday)
• December Personal Income & Spending (Friday)
• Q4 GDP (Friday)

U.S. Week in Review

Strong Payrolls Dampen Hopes for Near-Term Rate Cuts

The upshot of a mini-government shutdown last week was the somewhat unusual alignment of indicators that brought fresh data on both jobs and inflation inside a span of 48 hours. This pivotal double header showed improvement on both of the Fed's mandates. The job market improved, even if hiring remains quite concentrated in the healthcare and social services sector, and inflation cooled more than expected. Hawks on the FOMC can now point to a labor market that is regaining its footing, but doves can cite the improvement in bringing inflation closer to target as a rationale for adjusting rates down another notch closer to neutral.

For months now, we've been saying that the window for additional Fed cuts is closing. Taken together, this week's data has likely pushed the next rate cut out until June, with the prospects for any further rate cuts in this cycle remaining dependent on how the data evolve over the next few months. If the breadth of robust hiring extended beyond just a few sectors, we'd say the window for additional cuts is closed. For now though, the tepid pace of hiring ex-healthcare does not warrant such conviction.

January payrolls handily exceeded modest expectations with a +130K gain in net hiring. This lifted the three‑month average to 73K (chart) and pushed the unemployment rate back down to 4.3%—where it was in August 2025 before the FOMC cut rates at its three subsequent meetings. While revisions were deeply negative, they were largely anticipated and did little to change the forward signal: job growth appears to be stabilizing rather than rolling over. Inflation data were more constructive. Headline and core CPI both cooled in January, and core inflation is now running at its lowest annual level since early 2021 (chart). While core PCE inflation is likely to come in stronger for January (~0.37% m/m) due to different weightings, source data and seasonal adjustment factors, the disinflation narrative remains intact. That said, the combination of firm labor data and still-above-target inflation makes a March rate cut look highly unlikely, even as it preserves optionality for cuts later in 2026.

The Employment Situation report may hoard the limelight especially with a big upside surprise, but other measures of the jobs market have not been quite so rosy. Wage pressures continue to fade. The Employment Cost Index undershot expectations in the fourth quarter, with compensation growth slowing to a 3.4% year-over-year rate—the weakest pace since 2021. Cooling wages and benefits (outside of healthcare) alongside solid productivity gains ease concerns about a labor-cost-driven inflation resurgence. But it's these signs of a gradually moderating labor backdrop that keeps downside growth risks on the Fed’s radar. The latest consumer data point to some weakness with retail sales stalling in December. But, aggregate holiday spending rose 3.6% in November and December compared to a year-earlier, broadly in line with our earlier expectations. The year-end weakness appears narrow and goods-led rather than a broad retrenchment, leaving the outlook for consumer demand largely intact heading into 2026.

U.S. Week Ahead

U.S. Trade Balance • Thursday

Recent trade data have been noisy, but the signal remains intact. After narrowing sharply in October, the trade deficit widened again in November, driven largely by volatility in a handful of categories—most notably gold, pharmaceuticals, and high‑tech imports. These swings reflect category‑specific distortions, not a broad deterioration in trade fundamentals. Stripping out gold and high‑tech effects, underlying import demand was soft in 2025, weighed down by tariff uncertainty and slower capital spending outside the technology sector.

Looking ahead, we expect the trade deficit to widen further to -$57.6 billion in December, as these specific factors continue to influence the year‑end data. However, the outlook for early 2026 is more constructive. Firm consumer demand, a recovery in more traditional areas of capital spending, and inventory normalization—absent evidence of a structural shift toward onshoring—should support a rebound in import growth as we move into the new year.

Personal Income & Spending • Friday

U.S. consumers remain on solid footing heading into 2026. Household spending continues to run at a healthy pace, and we look for nominal personal spending to rise 0.3% in December, leaving real spending roughly flat. While December retail sales were softer than expected and should weigh modestly on year‑end spending, the weakness appears driven by timing and pull‑forward effects rather than a deterioration in underlying demand. As a result, the softer retail print does not meaningfully change our constructive view of the consumer entering the new year.

Income growth remains the key watch point. Soft income gains have required households to lower saving rates, and we expect personal income to rise only 0.3% in December. Even so, the near‑term outlook for consumption remains supportive. Tax relief, easing inflation, and steadier job growth should help offset income headwinds and keep real consumer spending growing at a moderate pace through 2026.

Q4 GDP • Friday

U.S. growth likely slowed at year‑end, but underlying fundamentals remain solid. We estimate real GDP grew at a 1.6% annualized pace in Q4, with most of the weakness attributable to the extended government shutdown from early October through mid‑November, which likely shaved roughly 1.2 percentage points from headline growth.

Stripping out shutdown effects, activity held up well. We expect real PCE to grow at a 2.7% annualized rate, while business investment likely posted a modest gain led by high‑tech equipment and intellectual property. Net exports and inventories remain the key sources of volatility. Beyond tariff uncertainty, a surge in investment‑related gold flows continues to cloud the signal from monthly trade data, while inventories remain inherently difficult to forecast given limited real‑time information. Through this noise, the economy appears to have ended 2025 in a healthy position, growing at a 2.2% average pace over the year.

Monday, Feb 16, 2026

Tuesday, Feb 17, 2026

Wednesday, Feb 18, 2026

Thursday, Feb 19, 2026

Friday, Feb 20, 2026

• US GDP and PCE inflation are main highlights, plus the Fed minutes.
• UK and Japan have busy calendars too with focus on CPI.
• Flash PMIs for February will also be doing the rounds.
• RBNZ meets, is unlikely to follow RBA’s hawkish path.

Dovish Fed bets suffer a fresh blow

The US jobs report for January, which was delayed slightly, didn’t do the dovish Fed bets any favours, as expectations of a soft print did not materialize, confounding the raft of weak job indicators seen in the prior week. Had the payrolls numbers disappointed, investors would likely be pricing in at least a 50% probability of a third 25-bps rate cut by year-end.

More significantly, outgoing Fed Chair Jerome Powell would have found himself in a somewhat awkward position, having dismissed concerns about the labour market at last month’s FOMC press conference. But Powell and his more hawkish colleagues can breathe a sigh of relief, as it seems that employment conditions improved in January, allowing the Fed to refocus on inflation, which remains uncomfortably above the 2% target.

Another packed US data agenda

Over the coming week, there will be plenty more data for the Fed to get its hands on, with a risk that total rate cut expectations for 2026 could slip below 50 basis points.

The Empire State manufacturing index will start things off on Tuesday, followed by durable goods orders, building permits, housing starts and industrial production on Wednesday. The Philly Fed’s manufacturing gauge is out on Thursday, along with pending home sales.

The main highlight, however, is Friday’s batch of stats, which include the first estimate of GDP growth in Q4 and the core PCE price index.

The US economy likely expanded at an annualized pace of 3.0% in the three months to December, slowing from Q3’s 4.4% pace. The Atlanta Fed’s GDPNow model puts the estimate at 3.7%, suggesting there’s a good chance of an upside surprise. A stronger reading would give the Fed hawks further ammunition to argue for a pause.

But more important will be how the PCE price indices affect the inflation picture. Both the headline and core PCE measures stood at 2.8% y/y in November. A slight moderation is possible in December, potentially reversing some of the recent unwinding of Fed rate cut bets and putting the US dollar on the backfoot again.

The personal income and spending figures will be watched too as consumption is the backbone of the American economy. Other releases on Friday include new home sales and S&P Global’s flash PMI readings for February.

Will Fed Minutes have much impact?

Aside from the data, the Fed will publish its minutes of the January policy gathering on Wednesday. The notable hawkish tilt was quite evident at this meeting, and judging from the Fedspeak since then, it’s only the usual suspects that are still pushing for immediate rate cuts, with most policymakers being comfortable to wait a bit before making up their minds on further reductions.

Nonetheless, the minutes might point to a willingness by FOMC members to put aside inflation worries in the event that the labour market sours again, and this could be positive for risk sentiment.

Yen bulls target Japanese data for more fuel

For the dollar, however, any ratcheting up of rate cut bets could be especially dangerous against the yen, as the Japanese currency is finally enjoying some buying pressure after months of being hammered in forex markets.

Prime Minister Takaichi’s landslide victory at last weekend’s snap election may have given her the green light to push through additional fiscal support measures, risking a new debt episode, but it could also have ushered in a new era of political stability in Japan, and this can be positive for a currency.

Moreover, with various senior Japanese officials repeatedly warning against excessive yen moves and the Bank of Japan sounding increasingly more hawkish, there is now talk of a ‘buy Japan’ trade. This was already demonstrated on the day of the NFP report when the dollar could only manage a short-lived spike versus the yen before drifting lower again despite the upbeat jobs data.

The yen’s rally has started to broaden against other majors and could gain further traction on Monday if the Q4 GDP estimate impresses. Japan’s economy is forecast to have grown by 0.4% q/q, recovering partially from the 0.6% contraction in Q3.

Also due over the next few days are trade figures on Wednesday, machinery orders on Thursday, and the flash February PMIs as well as the January CPI prints on Friday.

UK jobs and CPI on tap as BoE poised to cut again

The UK will not be spared by the data barrage either, as a crucial week awaits the pound. With Bank of England policymakers citing the weak labour market and sluggish growth for their dovish stance, Tuesday’s employment numbers for the three months to December will be scrutinized, particularly wage growth and the worrying uptrend in the unemployment rate.

Next up is the CPI report on Wednesday. Headline CPI disappointingly edged up to 3.4% y/y in December while the core rate held steady at 3.2% y/y. Should CPI resume its decline in January, the pound is likely to come under pressure, as rate cut bets for the next BoE meeting in March would get a lift, pushing the odds of a 25-bps reduction above the current 64%.

On the other hand, a surprise uptick in inflation could create a dilemma for the BoE’s less dovish MPC members.

Finally on Friday, January retail sales and the flash PMIs for February could inject some additional volatility into sterling before the week wraps up. Though, with the political storm over Prime Minister Starmer’s leadership easing for now, the downside has become more limited.

Canadian CPI may not offer any valuable insight

Another country that will be reporting CPI figures next week is Canada. In the minutes of its latest policy meeting published last Wednesday, the Bank of Canada acknowledged that the heightened global uncertainty is making it hard to predict the direction of interest rates.

Although the Canadian economy has been on a somewhat more solid footing lately, the BoC is concerned about the upcoming renewal of the United States-Mexico-Canada trade agreement amid President Trump’s unpredictable nature. Policymakers are also struggling to get a good read on inflation as the headline number has been inching higher in recent months but two key underlying measures have been falling.

Tuesday’s CPI readings for January are unlikely to prompt the BoC to unpause at its next meeting but may nevertheless help to clear some of the fog. Still, the Canadian dollar will probably be paying more attention to what’s happening to Fed expectations as well as to any fresh remarks by Trump on the country.

A not-so-exciting week for the Euro

In the euro area, the flash February PMIs are the main focal point for the single currency. Although the euro’s recent surge against the dollar has cooled, a revisit of the $1.20 territory remains on the cards as long as the Eurozone economy maintains its moderate but steady pace of growth and Fed rate cut bets aren’t scaled back beyond 50 bps.

The Eurozone’s composite PMI is forecast to have risen slightly in February. However, the spike in tensions between the EU and US over Greenland may have cast a shadow over business confidence in the early parts of the month, posing a downside risk.

Germany’s ZEW survey due Tuesday may also shed some light on business sentiment. But for euro/dollar, traders will probably be taking their cues from dollar developments.

Aussie hoping for jobs lift

In Asia, the impressive rally in equity markets has stumbled ahead of the long Lunar New Year holiday and could struggle further next week when liquidity is expected to be thin, as Chinese markets will be closed.

However, it may not necessarily be particularly quiet for the antipodean currencies as key jobs numbers are due on Thursday in Australia, while the Reserve Bank of New Zealand will announce its first interest rate decision of 2026 on Wednesday.

The Australian economy is showing early signs of overheating, prompting the Reserve Bank of Australia to become the first major central bank to revert back to a hiking cycle post pandemic. Moreover, RBA policymakers continue to beat the hawkish drums and Tuesday’s minutes of the February policy meeting will likely stress the upside threats to inflation.

Yet, investors see only about a 20% probability of a back-to-back rate increase at the May meeting. If the employment report for January reinforces the view of a strengthening jobs market, those odds could rise further, adding more bullish wind to the aussie’s sails. A day earlier, wage figures for Q4 will also be watched.

RBNZ to stay on hold

Interestingly, it wasn’t so long ago that the RBNZ was leading the race to hike rates first. But the recovery in New Zealand’s labour market has been slow and despite positive jobs growth in Q4, the unemployment rate hit a decade high of 5.4%.

Subsequently, investors don’t see a significant prospect of a rate hike before the autumn and the RBNZ is almost certain to keep policy unchanged on Wednesday. The New Zealand dollar, however, might still be subject to some swings if the RBNZ adopts a strong dovish or hawkish bias. The latter could even help the kiwi break the strong resistance in the $0.6075 area.

A packed Canadian economic release calendar in the coming week should reveal a partial recovery in auto production, a slightly narrower trade deficit in December, and further evidence that underlying inflation remains above the Bank of Canada’s 2% target despite edging lower.

International trade, manufacturing and wholesale sales reports should reinforce that some heavily trade exposed subsectors of the economy are still being significantly impacted by U.S. tariffs. But a sharp 20% drop in motor vehicle production in November—driven, at least, in part by semiconductor shortages—partially reversed seasonally adjusted in December. Advance estimates from Statistics Canada showed manufacturing sales up 0.5%, and wholesales 2.1% higher after falling in November.

Canadian exports tracking lower for 2025

The tick up in in motor vehicle production should also partially retrace November’s 11.6% drop in motor vehicle and parts exports. However, exports outside of autos likely remained depressed. Declining oil prices weighed on energy exports, and a surge in metal exports from November may also have partially reversed in December.

We look for the Canadian merchandise trade deficit on Thursday to narrow slightly to -$1.8 billion from -$2.2 billion in November.

Overall, 2025 proved exceptionally volatile for trade flows with U.S. inventory builds boosting exports earlier in the year before falling after tariffs took effect. For the full year, Canadian goods’ exports are tracking lower by approximately 2.5% from 2024.

Food prices and tax distortions to drive inflation higher

Tuesday’s Consumer Price Index report for January should show a tick higher in Canadian headline inflation to 2.6%, largely due to tax-related distortions — the prior year’s GST/HST holiday was not repeated this year – alongside still elevated grocery price growth.

Food price growth could spike above 7%, driven by rising restaurant costs compared to tax-exempt levels a year ago. But, grocery store price growth also likely remained high after hitting 5% in November. Energy prices, meanwhile, are tracking 11% below a year ago with gasoline down 17%—roughly half attributable to the removal of the carbon tax.

The BoC has limited control over global commodity trends affecting energy and food prices. The central bank will continue monitoring broader underlying price growth measures more closely. Median and trim CPI measures, which exclude indirect tax impacts, are expected to hold around 2.5% year-over-year—and have been gradually edging lower—but remain above the 2% target.

After a long period of softness, the US labour market finally responded to the stronger growth seen in the second half of 2025, where GDP growth averaged 4.1% annualised. The labour market report showed a gain of 130k jobs in January, the strongest monthly rise in more than a year and the unemployment rate dropped from 4.4% to 4.3%. It lowers the probability of a rate cut from the Fed already in March.

It was not all good news in the US the past week, though. Benchmark revisions to the employment level showed a downward revision of around 900k in 2025 and although it was expected, it underlines that job growth has been much weaker in 2025 compared to previous years. It highlights the rising structural headwind from labour supply but also indicates that productivity growth has been strengthening. Retail sales for December showed a decline of 0.1% m/m in the core measure vs expectations of a 0.4% m/m increase and November was revised lower as well pointing a slower trend in consumption. We do see ebbs and flows in consumption growth, so it is too early to get concerned. We do expect some slowdown in consumption growth on the back of lower wage gains and softer employment growth, which lowers household income growth and thus spending power.

It was a quiet week in the Euro zone but a small lift to the Sentix survey added to signs that manufacturing growth is recovering again after a short soft patch. A sharp rise in German factory orders and rising metal prices also point to stronger manufacturing.

The Japanese election last weekend gave a landslide victory to LDP's prime minister Sanae Takaichi. She pursues a more expansionary fiscal agenda, and her win has driven new gains in Japanese stocks. The reaction has been more muted in the JPY and the bond market, partly because her win was widely anticipated and some profit taking took place in short JPY and bond positions.

In China, the main story was reports saying the financial regulator had told banks to reduce US treasury holdings. It was not confirmed officially, though, and we doubt China is about to sell US treasuries on a wider scale. However, they may lower purchases of long bonds and not refinance existing debt leading to a lower share of treasuries on their balance sheets. Chinese CPI inflation was lower than expected falling from 0.8%y/y to 0.2% y/y However, the data is distorted by timing of the Chinese New Year, which falls in February this year instead of January. More interesting was PPI data, which showed the fourth m/m increase in a row indicating that deflationary pressures are easing.

Financial markets were pretty quiet the past week with stock markets treading water, while bond yields have moved slightly lower despite the stronger US employment report. In oil markets, all eyes are on US-Iran talks and whether they will be able to make a deal to avert a US military intervention. As of today, Polymarket puts a 43% probability on a strike by June.

Next week focus turns to Flash PMIs in the US, euro zone and Japan. German ZEW, euro wage growth and Japanese CPI will also be scrutinized.

Full report in PDF. 

Markets

US inflation figures were this week’s second focal point for markets, next to Wednesday’s payrolls. January prices rose by 0.2% m/m to be up 2.4% in yearly terms. That was slightly below consensus of 0.3% and 2.5%. Core inflation printed bang in line with expectations, accelerating from December’s 0.2% to 0.3% m/m and resulting in an annual 2.5%. Both headline and core eased in y/y terms from 2.7% and 2.6% respectively, the latter being a new five year low. Energy (-1.5%) and within that category especially gasoline prices (-3.2%) showed some of the steepest monthly declines, together with used cars & trucks (-1.8%). Housing price pressures decelerated quite strongly from December’s 0.4% to 0.2%, dragging the overall numbers down due it its sizeable basket weight (44%). Supporting inflation last month was apparel – considered a tarrif pass-through gauge (0.3%) – and airline fares (+6.5%). Core services (ex. housing) was 0.56%, the biggest increase in a year. In y/y terms, this closely watched indicator (for it measures “domestic” inflation) by the Fed fell to the lowest since 2021. But a more dynamic annualized number based on the three-month moving average marched to the highest since April 2024. It’s not a complete surprise though that markets are ignoring such nuances. US yields dropped in a kneejerk sigh-of-relief response similar (but obviously opposite) to the payrolls reaction. The curve bull flattens with net daily changes varying between -3 and -3.8 bps. The 2-yr yield dropped to a new YtD low and tested the October 2024 multiyear around 3.4%. The timing for a full Fed rate cut didn’t change (July) although the June scenario is regaining traction (85%). Cumulative easing bets for all 2026 rise slightly to the most since the Fed’s last rate cut in December last year (>60 bps). European yields fell in a catch up move with the US and extended declines to around 3 bps in sympathy with their US peers after the CPI. US stock futures rebounded after the CPI-release but still trade with minor losses after the cash open. European stocks are still down on the day. Just as the US dollar failed to profit from Wednesday’s post-payrolls yield uptick, it barely loses territory now. EUR/USD (1.187) gets no further than wiping out the previous, small losses. DXY is similarly going nowhere around but slightly below 97. JPY’s week-long rally met resistance near the YtD highs with USD/JPY eking out tiny gains to 153.

News & Views

The consumer price index in Switzerland in January declined 0.1% compared with December 2025. The price index was 0.1% higher compared to the same month last year. Core inflation (ex. fresh and seasonal products, energy and fuel) rose 0.1% M/M and 0.5% Y/Y. The monthly decease in headline inflation was due to lower prices for electricity and supplementary accommodation. Prices also decreased for air transport, as did those for clothing and footwear. Prices for hotels and international package holidays increased, as did car insurance premiums, the Swiss Statistical office said. The January data were based on a new CPI basket due to a regular revision. Interesting in terms of the impact of the Swiss Franc on inflation, prices of imported goods declined 0.6% M/M and 1.5% Y/Y. The January inflation data, while very low, probably won’t come as a surprise for the Swiss National Bank. In its December forecast, the SNB forecasted inflation at 0.1% Y/Y in Q1 and 0.3% for 2026 as a whole. With the policy rate at 0%, SNB recently indicated that the bar for cutting it back in negative territory remains rather high. At EUR/CHF 0.912, the franc again trades near all-time strongest levels against the euro except for the FX-spike in early 2015.

Polish January CPI inflation printed at +0.6% M/M, further reducing the Y/Y reading to 2.2% Y/Y from 2.4% in December. Inflation dropped further below the 2.5% inflation target of the National Bank of Poland, but the outcome was slightly above consensus estimates. Food prices rose 1.1% m/m, dwelling prices rose 1.3% m/m (of which electricity gas and other fuels rising by 1.9%). Fuels for transport declined 2.4% m/m. Even as inflation was higher than expected, the central bank will probably still discuss a rate cut (policy rate currently 4%) at the early March meeting, which comes with new economic forecasts. Several MPC members including governor Glapinski recently mentioned the option of a rate cut at the March meeting. The zloty 2y swap only rises marginally today (3.52%; +1.75 bps). The zloty gains slightly to EUR/PLN 4.21.

• US headline inflation rose by 0.2 per cent month on month and 2.4 per cent year on year, slightly below expectations.
• Core inflation stood at 0.3 per cent month on month and 2.5 per cent year on year, confirming gradual disinflation.
• Rent growth slowed to 0.2 per cent, while tariff effects remained limited.
• Markets reacted moderately, with lower US yields and Fed Funds futures pricing in nearly two and a half cuts

January data without a negative surprise

January’s inflation report in the United States delivered a moderately positive signal for financial markets. Consumer prices rose by 0.2 per cent month on month and by 2.4 per cent year on year, slightly below market consensus. Core inflation, excluding energy and food, increased by 0.3 per cent month on month and 2.5 per cent year on year, in line with analysts’ expectations.

Importantly, the pattern seen in previous years, when January readings repeatedly surprised to the upside, did not reappear. At the beginning of the year, firms often revise their price lists, which in periods of strong cost pressure had previously led to marked increases in inflation indicators. This time, the effect was limited, suggesting that price pressures are gradually easing.

Contributions to US CPI Y/Y% NSA, source: Bloomberg

Limited impact of tariffs and slowing rent pressures

The impact of tariffs on overall price levels remains moderate. In selected categories, such as audio and video equipment, above average price increases are visible. However, overall goods prices excluding energy and food were unchanged compared with the previous month, as was already the case in December.

Stronger increases were recorded in the services sector, where prices rose by 0.4 per cent month on month. This was partly due to significant volatility in air fares, which climbed by 6.5 per cent. More importantly, rent inflation slowed markedly to 0.2 per cent, as housing costs had been a key factor sustaining elevated core inflation in previous quarters.

The trend in core inflation continues to point towards a gradual moderation in price dynamics. The disinflationary process is progressing slowly, but the overall direction remains consistent with policymakers’ expectations.

The Fed can afford to wait for further data

For the Federal Reserve, the current report is relatively comfortable. On the one hand, the feared surge in prices at the start of the year did not materialise, confirming that the impact of tariff increases remains limited. On the other hand, inflation has not fallen sharply enough to justify an immediate easing of monetary policy.

In this context, the central bank can keep interest rates unchanged in the coming months and wait for additional data. Rate cuts at the next two meetings therefore appear unlikely, as policymakers will want to ensure that the downward trend is durable and broadly embedded across the economy.

Three or four rate cuts by year end

In the medium term, however, the prospect of monetary easing remains realistic. If inflation continues to moderate gradually, supporters of the view that tariffs have only a temporary impact on prices will gain further credibility.

The baseline scenario assumes that the rate cutting cycle begins in June, with a total of four interest rate cuts by the end of the year. This would represent a more decisive easing than is currently priced in by financial markets. In such a scenario, the Fed would gradually shift from a neutral stance to a more dovish one, supporting economic activity while continuing to monitor the pace of disinflation and longer term price stability.

Market reaction

The release triggered a moderate but noticeable reaction in financial markets. EURUSD rose from around 1.1860 to 1.1880, signalling a slight weakening of the US dollar. Gold climbed from approximately 4960 USD to 5000 USD per ounce, reflecting increased sensitivity to the prospect of looser monetary policy in the months ahead. Futures on the SP 500 edged higher, indicating a mildly positive reception from equity investors.

A more pronounced move was visible in the bond market. Yields on US Treasury securities declined noticeably, with the ten year yield falling below 4.07 per cent, compared with around 4.12 per cent earlier in the day. The drop in yields suggests that investors have begun to price in a greater likelihood of interest rate cuts later this year.

The futures market reaction was relatively measured. Fed Funds futures currently price in close to two and a half rate cuts for the remainder of the year.

10-year US government bonds, source: Bloomberg

The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in January, one-tenth below the consensus forecast in Bloomberg. On a twelve-month basis, CPI was up 2.4% (down from 2.7% the month prior).

• Energy costs fell 1.5% m/m, thanks to a sharp pullback in prices at the pump (-3.2% m/m). Food prices (0.2% from 0.7% in December) also moderated in January.

Excluding food and energy, core inflation rose 0.3% m/m, following softer gains the two prior months and more than the 0.2% m/m average increase over the prior twelve-month period. However, favorable base effects pushed the year-on-year change down to 2.5% (from 2.6% in December).

Price growth on services heated up, rising 0.4% m/m, or the fastest monthly increase since July 2025. Primary shelter costs came in on the cooler side – rising 0.2% m/m – while price growth of non-housing services firmed. Air fares (+6/5% m/m) rose sharply last month, while most other categories tied to discretionary spending were higher.

Core goods prices were flat for a second consecutive month, as a sharp pullback in used vehicle prices (-1.8% m/m) offset smaller gains in household furnishings, apparel, medical commodities, and recreational goods.

Key Implications

All told, January's inflation report came in a touch cooler than expected. But there were plenty of cautionary signs for the months ahead. Core goods would have firmed if not for the sharp pullback in used vehicle prices, as most other categories showed price growth last month. Moreover, the softer gain in primary shelter could still be related to post-government shutdown distortions (see Q&A Question 3), suggesting there could be some giveback in the months ahead.

We expect some firming in inflationary pressures over the coming months, as businesses continue to pass on increasingly more of the tariff cost. There's also a risk of a stronger demand-side push on inflation, as OBBBA tax cuts, easier financial conditions, and a stabilizing labor market provide tailwinds to consumer spending. It's for this reason that we think that the Fed will stay on the sidelines until at least the summer.

Daily Pivots: (S1) 152.34; (P) 153.49; (R1) 154.43; More...

Intraday bias in USD/JPY stays neutral and outlook is unchanged. While another fall cannot be ruled out, strong support should be seen from 38.2% retracement of 139.87 to 159.44 at 151.96 to bring rebound. On the upside, sustained break of 55 4H EMA (now at 154.70) will bring stronger rebound towards 157.65. However, sustained break of 151.96 will argue that it's reversing the rise from 139.87 already. In this case, deeper fall should then be seen to 61.8% retracement at 147.34, and possibly below.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 151.68) holds. However, sustained break of 55 W EMA will argue that the pattern from 161.94 is extending with another falling leg.