Bilal Hafeez, Research Analyst at Nomura, suggests that the core inflation is on the rise in the US, which may mean the Fed is falling behind the curve, and oil prices have been having a major impact on CPI measures that central banks target. Key Quotes “So it comes as no surprise that Inflation has been slowly infecting FX markets over past year. Indeed, the real rate differential and the dollar have been tied more closely together than most other measures. Perhaps more interesting is how developed currencies fare when inflation is incorporated. Ranking currencies by their two-year yields, we find the usual suspects, AUD and NZD, at the top of the table, and CHF and SEK at the bottom of the table. But when we adjust these yields for expected inflation (this time using analysts’ forecasts), we find some major changes in rankings. The most significant changes are NOK, which plunges from 5th place to the bottom of the table, and CHF, which jumps from bottom to 4th. This suggests that the rally in “risk” currencies seen over the past week could start to splinter, with AUD and NZD continuing to perform, while others like NOK start to lose steam, especially if oil prices stabilise.” For more information, read our latest forex news.