FXTRADING Economic Data Summary (Asia-Pacific | 02/26)

Australias inflation picks up again

Australias latest inflation data once again exceeded market expectations, indicating that price pressures are still building. Headline CPI for January held at 3.8% year-on-year, not only above forecasts but also near the upper end of the recent range. The data suggest that previous tightening measures have not yet fully restrained the transmission of demand- and cost-side pressures, and the disinflation process is progressing more slowly than the market had anticipated.

More importantly, core inflation showed renewed strength. The trimmed mean CPI rose to 3.4%, moving higher again and remaining above the target band. Housing, food, and recreation-related spending were the main drivers, with housing costs continuing to record notable increases, highlighting persistent structural inflation. FXTRADING believes that the renewed firmness in core inflation will limit room for policy easing, increasing the likelihood that the Reserve Bank of Australia maintains a hawkish stance, while market expectations for further rate hikes will remain highly sensitive.

US consumer confidence rebounds

US consumer confidence improved in February, rising from 89.0 to 91.2 and clearly outperforming market expectations. After a period of weakness, the rebound reflects some easing in household concerns about the economic outlook. However, overall levels remain well below last years peak, suggesting that the foundation of confidence is still fragile.

The subcomponents showed divergence. Assessments of current conditions edged lower, while the expectations index improved notably, indicating that pessimism about the near-term outlook has moderated. Nevertheless, survey feedback shows that inflation remains the dominant concern, while discussions related to trade policy and political uncertainty have increased, keeping the overall tone cautious. FXTRADING believes that US consumer sentiment is stabilizing but has yet to form a sustained recovery trend. Without clearer improvement in inflation and policy visibility, confidence is likely to fluctuate within a moderate range.

UK disinflation path becomes clearer

Recent remarks from Bank of England officials have signaled a more flexible policy stance. As price growth slows faster than previously expected, inflation may approach the 2% target sooner, with upcoming data likely to provide further confirmation. This has prompted markets to reassess the policy outlook, with expectations for rate cuts gaining traction.

From a structural perspective, goods and food prices have declined more significantly, partly reflecting external trade dynamics and improved supply conditions. However, services inflation remains resilient and continues to act as the main obstacle to a faster overall decline. At the same time, divisions remain within the policy committee, with some members concerned that wage dynamics, inflation expectations, and fiscal factors may not transmit smoothly. FXTRADING believes that UK inflation has entered a downward trend, but structural pressures persist, suggesting that any policy easing is likely to proceed gradually, with market pricing for rate cuts remaining volatile.

The Federal Reserve maintains a wait-and-see stance

Recent comments from Federal Reserve officials have emphasized a cautious approach, stressing that current interest rates should remain in place for some time while further evidence on inflation and employment is assessed. With the labor market showing signs of stabilization, policy is gradually approaching a neutral range, and there is no urgency to shift direction without clearer confirmation.

At the same time, uncertainty related to trade policy has re-entered the policy discussion. If companies have already passed higher costs on to consumers, these price increases may prove sticky, potentially delaying inflations return to target. As a result, policymakers prefer to wait for additional data rather than signal premature easing. FXTRADING believes that the Fed is likely to maintain a high-rate environment in the near term, with the policy narrative shifting from tightening to observation. Until the disinflation path becomes more firmly established, market expectations for rate cuts are unlikely to strengthen on a sustained basis.