EUR/USD declines after US CPI aligns with forecasts

Euro Declines as US Dollar Strengthens Following Inflation Data

The Euro (EUR) continued its downward trend against the US Dollar (USD) on Wednesday, with the Greenback gaining momentum after US inflation figures aligned closely with market predictions. At the time of reporting, EUR/USD hovered near 1.1587, marking its second consecutive day of losses.

Recent data from the United States revealed that the Consumer Price Index (CPI) increased by 0.3% month-over-month in February, meeting analyst expectations and rising from January’s 0.2%. On a yearly basis, headline CPI remained steady at 2.4%, matching forecasts.

Core CPI, which strips out the more volatile food and energy sectors, climbed 0.2% month-over-month in February, a slight slowdown from the 0.3% rise seen in January. The annual core inflation rate was unchanged at 2.5%.

Following the release of these figures, the US Dollar extended its gains during the session, reclaiming the 99.00 level. The US Dollar Index (DXY), which measures the Greenback against six major currencies, traded near 99.13—up about 0.20% for the day.

This inflation report reinforced expectations that the Federal Reserve may maintain a cautious approach to monetary policy. While the data was in line with projections, inflation remains persistent and above the Fed’s 2% target, suggesting that interest rates could stay elevated for an extended period.

Market participants, referencing the CME FedWatch Tool, largely anticipate that the Fed will leave interest rates unchanged at its upcoming meetings in March and April. However, there is a 36.2% chance of a 25-basis-point rate cut in June, with the probability increasing to 51.3% by July.

On the global stage, ongoing US-Iran tensions are adding uncertainty to the outlook for monetary policy worldwide. Climbing Oil prices, driven by these geopolitical risks, threaten to push inflation higher—especially in Europe, which relies heavily on energy imports.

As a result, markets have begun to factor in the possibility of a rate hike by the European Central Bank (ECB). Despite this, the Euro has struggled to find support, as investors remain concerned that rising Oil costs could hamper economic growth in the Eurozone.

ECB Vice President Luis de Guindos commented on Wednesday that “risks to prices are tilted to the upside, while risks to growth lean to the downside.”

Additionally, ECB Governing Council member Peter Kažimír remarked that a rate increase in response to the Iran conflict “may be closer than previously thought,” and emphasized that the ECB “stands ready to act if necessary.”