Four reasons to start worrying about inflation — including the end of tariff refunds
Current concerns over inflation are resurfacing, particularly as companies prepare to pass increased costs onto consumers due to the expiration of tariff refunds. Analysts warn that this could add upward pressure on inflation figures, which complicates the trajectory for monetary policy. With central banks already navigating tight labor markets and supply chain constraints, the potential for sustained inflation realism sharply increases. The FX market must brace for potential volatility as inflation data comes in stronger than expected.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). MarketWatch’s insights suggest risks to these targets may increase if inflationary pressures mount and central banks are forced to respond more aggressively.
How firms align
JPMorgan aligns with this standpoint, positioning their target at 1.10 amid rising inflation expectations reflected in their recent reports. Conversely, BofA takes a contrary view, expecting downward pressure on EUR/USD, which places their target lower at 1.04, likely reflecting more cautious inflation assessments. Refer to our internal reports for detailed firm analyses on this topic.
What the data shows
Recent revisions indicate that inflation forecasts are being adjusted upwards, with some firms highlighting the implications of consuming habits changing in the wake of tariff adjustments, as detailed in /research/inflation-impacts.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Inflation concerns rise as tariff refunds cease, impacting consumer prices.
- 02Traders should prepare for potential volatility around inflation data releases.
- 03A shift in monetary policy could be catalyzed by persistent inflation signals.
- 04Market positioning may need to adjust based on upcoming inflation numbers.
Market implications
Investors should watch for inflation data to potentially breach expectations, which could influence the EUR/USD towards the upper target of 1.12. Scheduled central bank meetings in the coming weeks will also be critical to monitor as they may reveal shifts in monetary policy strategies.
Risks to this view
This view could be invalidated if inflation data comes in surprisingly low, prompting a reassessment of the economic outlook and less urgency in central bank policy action. A reversal in consumer price trends would signal a cooling of inflation concerns.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.65
Sources & References
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