US Inflation Data and FOMC Policy Outlook Analysis

US Inflation and Monetary Policy Expectations

Recent data confirms that US inflation has surged to 4.2%, significantly above the Federal Reserve’s target. While this increase aligns with prior market expectations, the rapid acceleration from 2.4% over three months highlights sustained inflationary pressure. According to the CME FedWatch tool, the probability of at least one rate hike by year-end remains approximately 70%.

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Despite these figures, the FOMC is likely to delay policy tightening as long as possible. Although recent labor market data shows recovery following the 2025 easing cycles—with Nonfarm Payrolls approaching four-year highs—the Fed is hesitant to curb economic growth. Officials appear to be favoring a "wait-and-see" approach, hoping for external factors to alleviate inflationary pressures rather than adjusting interest rates prematurely.

Economic Growth and Fed Stance

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US GDP growth in the first quarter showed marginal acceleration but remains below neutral levels. Given that current economic conditions are sensitive to policy shifts, raising interest rates risks cooling both the economy and the labor market. Consequently, no FOMC officials have yet signaled a definitive readiness to vote for policy tightening before the end of 2026.

EUR/USD Technical Outlook

The EUR/USD pair currently maintains an upward trend bias, despite a short-term downward correction. The price's inability to break below the 1.1513 support level, which aligns with the 76.4% Fibonacci retracement, suggests a potential trend reversal. Traders may look for long positions, with potential upside targets near the 1.1700 level and beyond.

GBP/USD Technical Outlook

The technical structure for GBP/USD appears to be forming a three-wave downward corrective pattern. If this structure completes as expected, the pair may align with the broader upward trend observed in EUR/USD. Should this bullish scenario materialize, the pair could see upward momentum targeting the 1.3500 level.

Risk Management

All market participants should prioritize risk management, as market direction is never guaranteed. Technical wave analysis remains a useful tool when combined with robust risk protocols. Traders are advised to utilize stop-loss orders consistently to mitigate exposure to unforeseen market volatility.

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