FX Daily: US price check this week
The US inflation data release this week is expected to dictate near-term dollar direction, with market focus on whether disinflation progress continues or stalls. ING Economics highlights that a soft CPI print could weaken the dollar further, while a hot number may revive rate hike fears.
What the desk is arguing
The thesis: US price data this week is the key risk event for FX markets. A softer-than-expected CPI would reinforce the narrative that inflation is on a sustained downtrend, allowing the Fed to remain on hold or pivot dovish, which is negative for the dollar.
The supporting evidence: Recent ISM services and employment data have shown mixed signals, but disinflation in goods and rents has continued. Market pricing for a Fed cut in 2025 has already moved higher, and a benign CPI print would validate that shift, weighing on USD.
Implicitly rejecting the counterfactual: The desk is dismissing the risk of a reacceleration in inflation. They argue that base effects and easing supply chains should keep core goods prices soft, and that a hot CPI would be an outlier requiring upward revision to rate expectations.
Where it sits in our coverage
Our internal consensus target for EUR/USD stands at 1.08 for year-end 2025, with a 90% confidence spread of 1.04-1.12. ING's view aligns with this consensus: a weaker dollar on benign US inflation supports EUR/USD upside toward 1.10.
Specific firm targets from our per-firm coverage include: * JPMorgan: EUR/USD 1.08 (Mar-26) * Goldman Sachs: EUR/USD 1.10 (Mar-26) * Barclays: EUR/USD 1.06 (Mar-26)
How other firms see it
JPMorgan is aligned with ING, expecting a soft CPI to push EUR/USD higher toward 1.08. Goldman Sachs also aligns, forecasting EUR/USD at 1.10 by Mar-26 on the back of US disinflation and Fed easing.
Contrarily, Barclays remains more cautious, with a lower 1.06 target for Mar-26, arguing that US inflation may prove stickier than consensus expects, keeping the dollar supported.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01This week's US CPI release is the dominant FX risk event, likely to set the tone for the dollar in the near term.
- 02A soft CPI print would reinforce the disinflation narrative, weakening the dollar and supporting EUR/USD upside toward 1.10.
- 03A hot CPI could revive rate hike fears, strengthening the dollar and challenging the prevailing Fed pivot narrative.
Market implications
If CPI prints below consensus, expect broad USD weakness with EUR/USD rising toward 1.10 and USD/JPY declining toward 150. Conversely, a hot print would drive USD strength, pushing EUR/USD below 1.04 and USD/JPY above 155. Bond yields will be the transmission mechanism, with 2-year UST yields moving 10-15bp in either direction.
Risks to this view
The primary risk is a significant upside surprise in CPI, which would invalidate the disinflation thesis and force a repricing of Fed expectations. Additionally, geopolitical shocks or supply chain disruptions could rekindle inflation, adding to upside risk for the dollar.
Sources & References
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