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 InstaForex
© 2007-2025
Summary
Urgency
Analytic
Irina Manzenko
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

The Trade Deal and Mike Lee's Lie

In my previous article, I asked: how is it possible that in a country which sees itself as a world leader in almost every area, the president can openly insult

Chin Zhao 00:53 2025-07-24 UTC+2

Total Fed Audits as a Tool to Pressure Powell

The Federal Reserve requires total control and auditing — this was stated by U.S. Treasury Secretary Scott Bessent twice this week: on Monday and Tuesday. According to Bessent, the U.S

Chin Zhao 00:53 2025-07-24 UTC+2

EUR/USD. ECB July Meeting: A Preview

On Thursday, July 24, the European Central Bank will hold its July meeting in Frankfurt am Main. The central bank is almost certain to maintain all monetary policy parameters unchanged

Irina Manzenko 00:53 2025-07-24 UTC+2

The Dollar Hits a Wall of Resistance

Plan A: reach a tariff agreement with the U.S. at 10% or less by August 1. Plan B: activate the anti-coercion mechanism and impose import duties on the U.S. totaling

Marek Petkovich 00:53 2025-07-24 UTC+2

USD/JPY – Analysis and Forecast

The Japanese yen halted its intraday decline after Prime Minister Shigeru Ishiba downplayed the significance of recent media reports suggesting his resignation. News from Japan and the United States continues

Irina Yanina 13:23 2025-07-23 UTC+2

XAU/USD – Price Analysis and Forecast

News from the United States and Japan is significantly impacting the price dynamics of the precious metal. President Donald Trump announced the conclusion of a major trade deal with Japan

Irina Yanina 13:18 2025-07-23 UTC+2

AUD/JPY. Analysis and Forecast

On Wednesday during the Asian session, the AUD/JPY pair posted solid gains, extending a moderate rebound from the two-week low recorded the day before. However, spot prices have slightly pulled

Irina Yanina 11:53 2025-07-23 UTC+2

U.S.-Japan Deal Eases Market Tensions (Possible Decline in Ethereum and Litecoin)

An unexpected announcement from Donald Trump that the U.S. has struck a "major deal" with Japan gave investors a sense of relief, fueling demand for company stocks and reducing overall

Pati Gani 10:22 2025-07-23 UTC+2

The Market Faces a Cold Shower

If something seems too good to be true, it probably is. The S&P 500 remains stuck in indecision near its all-time high, showing little reaction to positive developments. Neither

Marek Petkovich 09:01 2025-07-23 UTC+2

What to Pay Attention to on July 23? A Breakdown of Fundamental Events for Beginners

No significant macroeconomic reports are scheduled for Wednesday. The event calendars for the Eurozone, Germany, and the United Kingdom are empty, while in the United States, a report

Paolo Greco 06:51 2025-07-23 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

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 InstaForex anyway.

We are sorry for any inconvenience caused by this message.