empty
16.07.2025 12:03 AM
EUR/USD. What Does the U.S. CPI Report Indicate?

Traders of the EUR/USD pair interpreted the U.S. CPI report in favor of the U.S. dollar, despite the release being somewhat mixed. The report reflected an acceleration in both headline and core inflation.

This image is no longer relevant

The overall Consumer Price Index (CPI) rose 0.3% month-over-month in June (in line with forecasts), marking the fastest growth pace since January. On a year-over-year basis, the index accelerated to 2.7%, exceeding the 2.6% expected by most analysts, following a previous reading of 2.4%. The figure has been rising for two consecutive months, reaching its highest level since February.

The core index, which excludes food and energy prices, also showed acceleration, but landed in the red zone compared to expectations. It increased to 0.2% MoM from the previous 0.1%, while the forecast was 0.3%. On a YoY basis, the core index rose to 2.9%. On the one hand, this is the first acceleration after three months of stagnation at 2.8%, but on the other hand, most experts had expected it to hit 3.0%.

The report structure shows a 7.9% drop in energy prices. However, natural gas continued to surge (+15.3% in June after +14.2% in May). Food prices increased by 3.0%, and prices for medical and transportation services rose by 3.4%. Car prices also went up—new vehicles slightly (+0.2%) and used cars more substantially (+2.8%). Housing costs rose by 3.8% in June (down slightly from 3.9% in the previous month). Clothing, on the other hand, saw a slight decline of 0.5%.

What does this report suggest?

Primarily, it signals that customs tariffs are starting to "seep" into consumer prices. According to WSJ estimates, about 0.1–0.15 percentage points out of the +0.3% monthly CPI increase can be attributed to the "tariff effect." In other words, nearly half of the growth is related to tariff-sensitive goods. However, the key inflation drivers (services and housing) continue to rise at a moderate pace.

So why did the market initially shrug off the report (EUR/USD rose by only 20 pips), only to then interpret it in favor of the greenback?

The main reason lies in the weakening of dovish expectations regarding the Federal Reserve's future actions. The report casts doubt on the likelihood of a rate cut in September. Although the shift began earlier (after the release of the June Nonfarm Payrolls), the data prompted traders to reassess their forecasts. According to the CME FedWatch Tool, the probability of the Fed maintaining a wait-and-see approach in September has risen to nearly 50%. For comparison, in early July, the chance of a rate cut in September was over 90%. Now, traders see the odds as 50/50. At the same time, market participants are nearly unanimous in their expectation that the Fed will maintain its current policy unchanged at the July meeting (98% probability).

It appears traders are viewing the CPI report through the lens of recent comments from Fed Chair Jerome Powell, who repeatedly emphasized that uncertainty over the impact of tariffs on inflation and the economy is one of the main reasons the Fed is on pause.

Inflation is, de facto, accelerating—and traders are drawing their conclusions accordingly.

However, it's important to recall the key signals from the Fed's June meeting minutes, released last week. According to the minutes, Fed members view tariff-driven inflation as "temporary or limited." Most of them have not abandoned the declared course toward monetary policy easing, leaving room for one or two rate cuts by the end of the year.

Therefore, the "triumph" of the greenback may prove short-lived. If Fed officials continue to argue that the inflation spike is temporary and the easing path remains intact, the EUR/USD pair could quickly return to its previous range of 1.1680–1.1750. This scenario seems quite likely, especially given that the bulk of Core CPI consists of services and housing sectors not directly influenced by foreign trade tariffs. As such, the Fed may well interpret the June acceleration in inflation as a temporary phenomenon. Moreover, both services and housing prices are rising steadily, without signs of acceleration.

All this suggests that, in the context of medium-term trading, holding short positions on EUR/USD remains a risky strategy. A wait-and-see stance is preferable, or long positions if the downward impulse fades, especially if sellers fail to break through the 1.1600 support level, which corresponds to the Kijun-sen line on the daily chart.

Irina Manzenko,
Analytical expert of InstaTrade
© 2007-2025

Recommended Stories

GBP/USD Overview – July 29: The U.S. Dollar Finally Starts to Trust Trump

The GBP/USD currency pair continued to decline on Monday. The British pound began its downward movement last week, and at that time, we concluded that purely technical factors were behind

Paolo Greco 03:44 2025-07-29 UTC+2

EUR/USD Overview – July 29: A Complete Failure for the European Union

On the 4-hour timeframe, the EUR/USD currency pair sharply reversed downward on Monday and posted a strong decline. In our opinion, this move is quite significant and telling. Let's examine

Paolo Greco 03:44 2025-07-29 UTC+2

EU–US Trade Deal. Part 2

On Monday, I got the impression that very few people in Europe knew what concessions von der Leyen was about to make. The American side of the negotiation was likely

Chin Zhao 00:45 2025-07-29 UTC+2

EU–US Trade Deal. Part 1

Four days before August 1 — the final deadline for the negotiations — the European Union and the United States announced the signing of a trade agreement. This deal

Chin Zhao 00:45 2025-07-29 UTC+2

EUR/USD: Correction or Trend Reversal?

"A celebration with tears in our eyes" — that's perhaps the most accurate way to describe the European reaction to the trade agreement signed between the U.S

Irina Manzenko 00:45 2025-07-29 UTC+2

Will the Dollar Regain Its Former Glory?

Everything new is well-forgotten. At the end of 2024, bearish forecasts for EUR/USD were widespread. The argument was that White House tariffs would slow eurozone GDP while accelerating inflation

Marek Petkovich 00:45 2025-07-29 UTC+2

Bitcoin Sheds Excess Baggage

Trends give way to consolidations. Consolidations pave the way for new trends. That's the nature of the market. And Bitcoin is no exception. The inability of the bulls to resume

Marek Petkovich 00:45 2025-07-29 UTC+2

The EU–US Deal Is a Disaster for the European Economy

The euro quickly resumed its decline after a morning rally during Asian trading. Apparently, investors have come to realize that the trade deal between

Jakub Novak 19:10 2025-07-28 UTC+2

USD/JPY. Analysis and Forecast

The Japanese yen continues to lose ground against the strengthening U.S. dollar. News of a trade agreement between the U.S. and the European Union, reached on Sunday, along with

Irina Yanina 18:51 2025-07-28 UTC+2

NZD/USD. Analysis and Forecast

The New Zealand dollar remains under pressure for the third consecutive day, with the NZD/USD pair trading below the key 0.6000 level and attempting to hold near the 0.5975 support

Irina Yanina 12:15 2025-07-28 UTC+2
Can't speak right now?
Ask your question in the chat.
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaTrade anyway.

We are sorry for any inconvenience caused by this message.