US Inflation Outlook and Forex Wave Analysis: May 2026

US Monetary Policy and the Dollar Outlook

Rising inflation in the United States remains a focal point for currency markets, though its immediate impact is currently secondary to geopolitical developments in the Middle East. While standard economic theory suggests that rising inflation should prompt interest rate hikes—historically supporting the US dollar—the current environment is complicated by shifting Federal Reserve dynamics.

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The influence of former President Trump's economic policy preferences continues to create uncertainty within the Federal Open Market Committee (FOMC). Despite the appointment of Kevin Warsh as the new chair and ongoing calls for policy easing, Chair Jerome Powell is expected to maintain oversight, potentially keeping the Fed in a stalemate regarding interest rate adjustments.

Given the dual pressure of an accelerating inflation trend and a softening domestic labor market, a definitive shift in interest rates appears unlikely in the near term. The market has largely priced in external geopolitical risks, leading to an expectation that the Federal Reserve will remain on hold throughout 2026, keeping the US dollar's trajectory range-bound.

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EUR/USD Wave Analysis

The EUR/USD pair currently resides within an upward trend, though it is experiencing a short-term corrective phase. Technical indicators suggest that this correction could deepen if geopolitical tensions persist.

Failure to find support may push the pair toward the 1.1665 level, which aligns with the 38.2% Fibonacci retracement mark. A sustained decline below this threshold would signal a potential move toward a more complex, elongated corrective structure.

GBP/USD Technical Forecast

The GBP/USD pair displays a clear five-wave upward structure, suggesting that the current bullish segment may be nearing completion. Analysts are monitoring the 1.3699 level, which represents the 76.4% Fibonacci retracement point, as a potential target for the conclusion of wave five.

Once this wave concludes, a corrective phase is expected to follow. Future performance will be heavily contingent on the interplay between technical wave formations and the evolving geopolitical landscape, which remains the primary catalyst for long-term sentiment in the pound.

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