The U.S. Bureau of Labor Statistics (BLS) is set to release its latest Consumer Price Index (CPI) report for February on Wednesday at 12:30 GMT, a key economic indicator that could influence the Federal Reserve’s (Fed) monetary policy decisions and the trajectory of the U.S. dollar.
Inflation Outlook: What to Expect?
February’s CPI data is projected to show an annual inflation rate of 2.9%, a slight decrease from January’s 3.0%. Core CPI, which excludes volatile food and energy prices, is also expected to ease to 3.2% year-over-year from the previous 3.3%. On a monthly basis, both the headline CPI and core CPI are forecasted to increase by 0.3%.
Analysts at TD Securities anticipate a cooling in core CPI inflation following a stronger-than-expected 0.45% rise in January. “We expect a slowdown in both goods and services inflation, with owners’ equivalent rent (OER) dropping to its lowest level in three months,” they noted.
Impact on EUR/USD and Fed Policy Expectations
With growing concerns over a U.S. economic slowdown and uncertainty surrounding global trade policies, markets have priced in 85 basis points (bps) of rate cuts from the Fed this year, up from 75 bps earlier in the week, according to LSEG’s Fed rate probability models.
Recent economic data has fueled these concerns. The February Nonfarm Payrolls (NFP) report revealed that only 151,000 jobs were added, falling short of expectations for 160,000 and marking a downward revision from the prior 125,000. Meanwhile, the unemployment rate edged up to 4.1%, exceeding forecasts of 4%. The labor force participation rate also dipped to 62.4% from January’s 62.6%.
Despite these signals, Fed Chair Jerome Powell reaffirmed a cautious stance last week, stating that the economy remains on solid footing, and any rate adjustments will be measured.
The upcoming CPI data could provide critical insights into the Fed’s next steps. A sharper-than-expected decline in inflation may reinforce expectations for rate cuts, putting pressure on the U.S. dollar. On the other hand, if inflation remains stubbornly high, the dollar could gain strength as the Fed maintains a hawkish approach.
EUR/USD Technical Outlook
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes that EUR/USD is approaching buyer exhaustion, with the Relative Strength Index (RSI) in overbought territory above 70. However, strong support levels suggest any pullback may be short-lived.
“For EUR/USD to continue its uptrend, it needs to clear the November 6, 2024, high of 1.0937, opening the door to the key psychological level of 1.1000 and potentially 1.1050,” Mehta explained. “On the downside, the 200-day Simple Moving Average (SMA) at 1.0721 serves as the immediate support, with further downside potential toward the March 5 low of 1.0602 and the 21-day SMA at 1.0546.”
As markets await the CPI data release, investors will closely monitor its implications for Fed policy and currency movements, with potential volatility ahead for the U.S. dollar and broader financial markets.
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