In the view of economists at Commerzbank, it all comes back to the question of whether or not the pandemic shock and energy crisis catapulted us out of the lowflation world. For the time being, analysts at Commerzbank expect high volatility in the markets.
“Do central banks have to fight persistent upside risks to inflation with aggressive monetary policy over the longer term, even at the expense of the real economy, or can the Fed prevent inflation dynamics from taking hold with short-term, rigorous rate hikes? Currently, the market seems to be leaning toward the latter scenario.”
“At some point, the Fed would have done ‘enough’ from which point there would be no further USD impetus. However, yesterday's inflation data do not change the fact that it remains unclear when exactly this point will be reached. Rather, I see the strong market reaction as a sign of how high uncertainty about the Fed's future course still is in the FX market. Prepare for continued turbulence.”
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