EUR/USD edges lower as the US Dollar strengthens after US CPI matched expectations.
Steady US inflation reinforces expectations for a cautious Federal Reserve monetary policy stance.
US-Iran war fuels Oil-driven inflation fears, clouding the global monetary policy outlook.
The Euro (EUR) weakens against the US Dollar on Wednesday as the Greenback strengthens after US inflation data came broadly in line with forecasts. At the time of writing, EUR/USD is trading around 1.1587, extending losses for the second straight day.
The latest US inflation data showed that the Consumer Price Index (CPI) rose 0.3% MoM in February, matching market expectations and accelerating from 0.2% in January. On an annual basis, headline CPI held steady at 2.4% YoY, also in line with forecasts.
Meanwhile, core CPI, which excludes volatile food and energy prices, rose 0.2% MoM in February, slowing from the 0.3% increase recorded in January, while the annual rate held steady at 2.5%.
In reaction to the data, the US Dollar extends its intraday advance, reclaiming the 99.00 mark. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99.13, up nearly 0.20% on the day.
The data reinforced expectations that the Federal Reserve (Fed) could maintain a cautious policy stance. Although the figures came in line with forecasts, inflation pressure remains sticky and well above the Fed’s 2% target, suggesting policymakers may keep interest rates higher for longer.
According to the CME FedWatch Tool, markets widely expect the Fed to keep interest rates unchanged at next week’s meeting and again in April. However, traders are pricing in a 36.2% probability of a 25-basis-point rate cut in June, rising to 51.3% in July.
Elsewhere, geopolitical tensions from the ongoing US-Iran war are clouding the outlook for global monetary policy, as rising Oil prices risk fueling inflation, particularly in Europe, which is a major net importer of energy.
As a result, markets have already started pricing in the possibility of an European Central Bank (ECB) rate hike. However, the Euro has failed to draw support, as investors worry that higher Oil prices could weigh on economic growth in the Eurozone.
ECB Vice President Luis de Guindos said on Wednesday that “price risks remain skewed to the upside, while risks to growth are tilted to the downside.”
Separately, ECB Governing Council member Peter Kažimír said that a rate hike linked to the Iran conflict “may be closer than previously thought,” adding that the ECB “will be ready to act if needed.”
Central Banks FAQ
What does a central bank do?
Central banks are responsible for maintaining price stability in a country or region. Economies constantly face inflation (rising prices) or deflation (falling prices). To keep the economy balanced, central banks adjust their policy interest rates.
Major central banks such as the US Federal Reserve, the European Central Bank, and the Bank of England generally aim to keep inflation close to 2%.
What does a central bank do when inflation undershoots or overshoots its target?
Central banks mainly use one tool: adjusting the benchmark policy interest rate. They announce these decisions during scheduled policy meetings.
When rates change, commercial banks adjust their savings and lending rates, which affects borrowing, spending, and investment across the economy.
When a central bank raises interest rates, it is called monetary tightening.
When a central bank cuts interest rates, it is called monetary easing.
Who decides on monetary policy and interest rates?
Monetary policy decisions are usually made by a central bank policy board composed of several members.
Members are typically appointed after a series of hearings or government approval processes to ensure independence from politics.
Members who support looser monetary policy and lower interest rates to stimulate growth are known as doves.
Members who prioritize controlling inflation and prefer higher interest rates are known as hawks.
Is there a president or head of a central bank?
Most central banks are led by a chairperson or president who oversees policy meetings and helps build consensus among board members.
If the board vote becomes evenly split, the chairperson may have the deciding vote to avoid a deadlock.
Central bank leaders also communicate policy outlook through public speeches and press conferences.
Before policy meetings, central bank officials enter a blackout period, during which they are not allowed to speak publicly about monetary policy.
| Pip Calculator Calculate pip value using live market rates. | Position Size Calculator Size trades by risk % and stop loss. | Forex Rebates Calculator Estimate cashback you can earn from trading. |
| Profit Calculator Calculate potential profit/loss for positions. | Compounding Calculator Project account growth by compounding gains. | Drawdown Calculator See how drawdowns affect recovery needs. |
| Risk of Ruin Calculator Estimate probability of blowing the account. | Pivot Point Calculator Daily pivots + key support/resistance. | Fibonacci Calculator Retracement & extension levels in seconds. |
| Margin Calculator Required margin by leverage & lot size. | Crypto Exchange Fees Compare maker/taker fees across exchanges. | Crypto & FX Converter Convert currencies with real-time rates. |
