US Consumer Price Index (CPI) rose to 3.0% in January
Russia-Ukraine talks boosted risk assets and sent the British pound surging
Federal Reserve Chair Jerome Powell emphasized that “we have work to do” on inflation
Risk Sentiment Upgrade as Russia Talks Boost Markets Amid Higher US Inflation – 13 February 2025
The Upbeat Shift in Risk Sentiment
In a surprising twist, the market’s attention was shifted to a more optimistic note with President Trump announcing talks with Russia to address the Ukraine crisis, boosting risk assets and sending the British pound surging against major currencies.
The sudden improvement in risk sentiment, triggered by the Russia-Ukraine talks, has led to a significant shift in market sentiment. Fear and uncertainty surrounding the escalating conflict between Russia and Ukraine have given way to hopes that a diplomatic solution may be within reach.
The US CPI: Is 3.0% a Cause for Concern?
The US CPI, which measures inflation at the consumer level, rose by 0.3% in January, driven largely by a sharp increase in energy prices. While this news may send alarm bells ringing for some, it is essential to put the numbers into context.
The 3.0% CPI reading is still within the Federal Reserve’s target range, and the core CPI, which excludes volatile food and energy prices, rose by a modest 0.1%.
Forex Implications
The sudden shift in risk sentiment has led to a pronounced move in the foreign exchange market, with many currency pairs experiencing significant fluctuations.
The US dollar, which had been under pressure in recent weeks, has slipped against several major currencies, including the euro and the British pound. The Australian dollar, which is often seen as a barometer of global market sentiment, has surged to its highest level in over a year.
As we move forward, it will be vital to monitor developments on the Russia-Ukraine crisis and keep a close eye on inflation data, as these can have a significant impact on global markets.
In the short term, we can expect risk assets to continue to benefit from the improving sentiment, with the Australian and New Zealand dollars likely to remain buoyant. However, as the Russia-Ukraine situation unfolds, traders will need to remain vigilant and adapt to any changes in market conditions.
With inflation still a concern, it is crucial to maintain a balanced view of the market, avoiding over-optimism and embracing the uncertainty that lies ahead.
