EUR/USD holds near 1.1433 as US inflation data looms

EUR/USD opened the week at 1.1433 as traders braced for US inflation data that will shape Federal Reserve rate expectations and the dollar's near-term trajectory.

"The inflation print is the single most important data point for FX markets this month," said Thierry Wizman, global FX and rates strategist at Macquarie Group. "A hot number would reinforce the case for a Fed hike and push EUR/USD back toward 1.12."

The euro held near 1.1433 against the dollar in early Asian trading, little changed from Friday's close. The dollar index eased slightly but remained supported by expectations that the Fed may need to raise rates further after inflation accelerated this spring. The Fed's preferred PCE gauge ran at roughly double the 2% target in May, according to the central bank's July 10 monetary policy report, while the June consumer price index due this week will provide the next test.

A hotter-than-expected CPI reading would increase the probability of a Fed rate hike before year-end, potentially pushing EUR/USD below 1.12 and strengthening the dollar across G10 pairs. A cooler print, by contrast, could allow the euro to test resistance at 1.15 — a level it has not breached since late February, when the US-Iran conflict escalated.

Geopolitical Uncertainty Adds to Dollar Support

The fracturing of a fragile ceasefire between the US and Iran has cast a fresh cloud over energy prices and global inflation, reinforcing safe-haven demand for the dollar. Brent crude remained elevated near $85 a barrel after Iran said it struck US military targets in the Gulf, raising the risk of supply disruptions through the Strait of Hormuz. The International Energy Agency expects global oil demand to decline by 1 million barrels a day this year — the first annual drop since 2020 — as higher prices weigh on consumption.

"The specter of war still hangs over sentiment," Wizman said. "The question confronting traders is whether Iran is willing to return to large-scale kinetic war with the US and its allies if necessary to strengthen its claim of control over the Strait of Hormuz."

Fed Divided on Next Move

The Federal Reserve's rate-setting committee is split on whether inflation will stay elevated or cool once the Iran war winds down, according to minutes released July 10. Half of the 18 policymakers who submitted projections supported lifting rates by year-end, while the other half favored keeping them unchanged or reducing them. New Chair Kevin Warsh, who did not submit a forecast, is set to testify before House and Senate committees this week, offering fresh clues on the policy path.

The Fed has held interest rates steady since December, but the June 16-17 meeting projections showed the central bank grappling with tariff-driven price pressures, war-related energy costs, and the artificial intelligence buildout — all of which have boosted inflation this spring. The monetary policy report to Congress noted that inflation "stepped up further this spring" and that the PCE price index was running at about double the central bank's 2% target as of May.

Eurozone Outlook Weighs on Single Currency

The euro's ability to rally is constrained by the European Central Bank's own challenges. The IMF forecasts the 21 European countries that share the euro will grow just 0.9% this year, down from 1.4% in 2025, as higher energy prices hit the region harder than the US. The US economy, by contrast, is expected to expand 2.3% in 2026, according to the IMF.

The growth differential supports a stronger dollar over the medium term, though positioning data suggests the market is already pricing significant hawkish risk from the Fed. Any downside surprise in this week's CPI could trigger a sharp reversal in dollar longs.

What to Watch

The US CPI report for June is due Wednesday, with economists surveyed by FactSet expecting headline inflation to moderate slightly from May's level. The data will be followed by Warsh's congressional testimony Tuesday and Wednesday, where he is likely to face questions on the Fed's inflation outlook and the path for interest rates.

This article is for informational purposes only and does not constitute investment advice.