Slowing US inflation to keep the Fed on hold
At a Glance
The current FX landscape suggests that slowing US inflation could lead the Federal Reserve to maintain its interest rate stance for the foreseeable future. Per the full note from ing-think, the decline in motor fuel prices is indicative of easing inflationary pressures, supporting the idea that the inflation peak may have been reached. This is coupled with a modest recovery in job creation and consumer spending, further reinforcing a more dovish Fed outlook. Without significant economic events on the calendar this month, traders should monitor developments in energy prices as a critical driver for inflation expectations and the Fed's policy direction.
Key Takeaways
Full Analysis
What the desk is arguing
The desk posits that the recent deceleration in inflation, particularly driven by lower energy prices, will keep the Federal Reserve on hold until at least summer 2027. Per the full note from ing-think, this easing in inflationary pressure is becoming apparent due to falling motor fuel costs and softer housing rents.
Supporting this thesis is the observation that US job creation has improved slightly, with averages reaching 137,000 new jobs per month, a significant uptick from earlier figures which hovered around 8,751 per month. Additionally, the forecast for GDP has been adjusted to 2.3% for 2026, reflecting an overall better outlook for consumer spending as lower energy costs bolster household disposable incomes.
Where it sits in our coverage
Our consensus target for USD/EUR is 1.075, with a range of 1.04 to 1.12, aligning closely with the analysis provided by jpmorgan at 1.10 for March 2026. In contrast, bofa provides a more cautious outlook, targeting 1.04.
The desk’s outlook is at the upper end of the current consensus, indicating optimism amidst a generally cautious market, driven by the potential for sustained lower inflation due to energy price trends.
How other firms see it
On one hand, firms like jpmorgan view the current trends as conducive to a positive economic outlook, advocating for a stronger USD against the EUR. Conversely, bofa remains skeptical of sustained growth, highlighting potential economic fragilities that could undermine confidence.
Traders should keep a close eye on the USD/EUR pair as it closely tracks Fed interest rate decisions and the evolving inflation narrative. Additionally, the outlook for US consumer spending and its correlation with energy prices will be vital in determining market momentum.
What the calendar says
With no significant US economic events in the upcoming calendar, the focus remains on energy price developments and inflation metrics that could influence the Fed's policy stance moving forward.
Market Implications
Traders should watch the USD/EUR pair closely around the key level of 1.075, as any shifts in inflation expectations due to fuel prices could prompt significant moves. The absence of impactful economic events suggests that market positioning ahead of other catalysts will be crucial in the coming weeks.
From the original
Articles Slowing US inflation to keep the Fed on hold Published 11:08 United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Lower motor fuel prices are bringing relief for consumers and suggest that inflation may have peaked. Slowing housing r
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