Forex Analysis & Reviews: 13.03.2025 - U.S. Inflation Brings Relief...

13.03.2025 12:14 PM

U.S. Inflation Brings Relief to the Fed but Not to the Markets

The euro and pound showed little reaction to news that consumer prices in the U.S. grew at their slowest pace in four months in February—a welcome sign for American households, which remain concerned that Trump's trade policies could drive up costs.

According to the data, the Consumer Price Index (CPI) rose by 0.2%, following a sharp 0.5% increase in January. Core prices, which exclude volatile food and energy categories, also rose by 0.2%.

The slowdown in price growth was partially due to declining prices for cars and gasoline. Economists, however, expect that the escalation of the trade war will lead to rising prices for various goods—from food to clothing—in the coming months, testing the resilience of consumers and the economy.

The Bureau of Labor Statistics reported that almost half of the CPI increase came from housing, though the pace of growth slowed compared to the previous month. Airfares dropped by 4%, marking the biggest decline since June, while new car prices and gasoline costs also decreased. Food prices, on the other hand, remained largely unchanged after a strong rise in January.

In his address to Congress last week, U.S. President Donald Trump downplayed concerns about rising prices due to tariffs, describing them as a minor inconvenience that the country should be able to overcome. However, uncertainty over trade policies and retaliatory measures from other countries have led to sharp stock market declines and renewed fears of a recession.

Meanwhile, the Federal Reserve remains patient, maintaining a wait-and-see approach until there is greater clarity on inflation trends and the administration's actions. Fed officials have repeatedly emphasized this stance in interviews. It is expected that the Fed will keep interest rates unchanged at next week's meeting, which limited the upside potential for risk assets like the euro and pound on Monday.

The combination of easing inflationary pressure and increasing risks of economic slowdown suggests that the Fed is approaching a point where it will need to resume cutting interest rates. However, that moment has not arrived yet.

Some economists analyzed this inflation report as an early indicator of Trump's tariffs' impact—which began last month with duties on all Chinese imports and have since expanded to include certain Mexican and Canadian goods. However, core goods prices rose only 0.2%, while categories such as furniture, toys, and televisions remained unchanged.

EUR/USD Technical Outlook

At the moment, EUR/USD buyers need to break through the 1.0930 level to target a test of 1.0970. From there, an advance toward 1.1010 is possible, but without strong support from institutional traders, this will be difficult. The ultimate target is 1.1050.

In the event of a decline, significant buying interest is expected around 1.0870. If no major buyers emerge at this level, a further drop toward 1.0840 or even 1.0800 could be possible before considering long positions.

GBP/USD Technical Outlook

For GBP/USD bulls, breaking the nearest resistance at 1.2960 is key to targeting 1.3010, beyond which further gains will be challenging. The main upside target is 1.3040.

If the pair falls, bears will attempt to regain control at 1.2940. A break below this range would deliver a serious blow to bullish positions, driving GBP/USD toward 1.2915 with the potential for a further drop to 1.2875.

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