Gas Costs a Third More Than a Year Ago
The surge in gas prices, which are now a third higher than last year, is exacerbating inflation pressures in the U.S., influenced by the ongoing conflict with Iran. This development is critical as rising energy costs tend to have a ripple effect, potentially influencing monetary policy and consumer behavior. With inflation being a key focus for the Federal Reserve, traders should closely monitor how these energy price shocks might alter the economic landscape and interest rate trajectories. The overwhelming sentiment suggests that the dynamics surrounding energy prices could noticeably affect currency valuations.
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). This inflationary pressure from energy costs aligns with the bullish positions from firms like JPMorgan, which see potential for a stronger euro against the dollar in the near term.
How firms align
JPMorgan remains aligned with the view that rising energy costs bolster the euro, reflecting their target of 1.10 for March 2026. Conversely, BofA's more bearish outlook at 1.04 suggests skepticism towards sustained euro strength amid inflationary headwinds, as outlined in our internal /reports/bofa page.
What the data shows
Recent analysis indicates that the strain from higher energy costs is prompting revisions in inflation expectations, which could influence currency movements. For deeper insights, see our recent piece on inflation impacts in /research/inflation-impact-2023.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Energy prices are a major driver of inflation, rising 33% YoY.
- 02Traders should note how rising costs could pressure the Fed's next moves.
- 03Watch for the EUR/USD around 1.075; significant moves could trigger shifts in sentiment.
- 04BofA's bearish outlook at 1.04 highlights risks to sustained euro strength.
Market implications
With gas prices surging, watch for potential market reactions as traders recalibrate expectations for central bank policies. Notably, the EUR/USD is approaching our consensus target at 1.075, making this a critical pivot point to monitor.
Risks to this view
A sudden de-escalation in the Iran conflict or a significant drop in energy prices could reverse the current inflation trajectory, leading to a stronger dollar and undermining the bullish euro sentiment reflected by firms like JPMorgan.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.60
Sources & References
How we cover this story