07.04.202613:15 Forex Analysis & Reviews: Inflation in US may become problem again

As the US dollar continues to reclaim ground against the euro and the pound, a sharp rise in gasoline prices in the US, felt by American consumers, will be fully reflected in the key inflation releases due shortly.

Economists forecast that the consumer price index will rise by 1% in March — the steepest monthly increase since 2022—after the war in Iran pushed pump prices up by about $1 per gallon. At the same time, according to a survey of economists ahead of the Bureau of Labor Statistics report, the core CPI, excluding energy and food, is likely to increase by 0.3% month on month.

This price shock, driven by geopolitical events, forces consumers into difficult choices. The sharp increase in gasoline costs hits household budgets directly, prompting cuts in discretionary spending. Those who rely on frequent driving for work, and low- and middle-income households for whom fuel makes up a significant share of expenses, will be especially affected.

However, as forecasts indicate, inflationary pressure will not be limited to energy prices alone. The rise in core CPI points to a broader spread of inflationary trends. This may reflect a domino effect: higher energy costs drive up raw material and transportation expenses for producers, which, in turn, show up in higher prices across a wide range of goods and services.

This situation poses additional challenges for the central bank. On one hand, it must curb inflation to preserve price stability and the purchasing power of the national currency. On the other hand, overly aggressive tightening of monetary policy could slow economic growth, which is already under pressure from external factors. Finding the optimal balance between inflation control and support for activity becomes a top priority.

Currently, oil prices are moving rapidly toward $120 per barrel, as key Middle Eastern energy assets remain at risk of renewed attacks at any time. Pressure from Trump to force Iran to reopen the strategically important Strait of Hormuz has also failed.

Last Sunday, OPEC+ warned that damage to Middle Eastern energy assets will have a long-term impact on oil supplies even after hostilities with Iran end, and approved a symbolic increase in production quotas for the coming month.

The release midweek of the minutes from the central bank's March policy meeting could shed light on officials' concerns about inflation or on the economic consequences of the conflict with Iran and the associated disruptions to energy and other commodity flows.

Regarding the current technical picture for EUR/USD, buyers now need to consider how to take the 1.1550 level. Only that will allow targeting a test of 1.1590. From there, a move to 1.1630 is possible, but doing so without support from major players will be quite difficult. The most distant target is the high at 1.1662. In the event of a drop in the instrument only to around 1.1520, I expect some serious action from large buyers. If there is nobody there, it would be wise to wait for a refresh of the low at 1.1500 or to open long positions from 1.1485.

As for the current technical picture for GBP/USD, pound buyers need to take the nearest resistance at 1.3245. Only this will allow targeting 1.3266, above which breaking through will be rather difficult. The most distant target is the 1.3300 area. In the event of a decline, bears will try to seize control of 1.3210. If they succeed, a break of the range will deal a serious blow to bulls' positions and push GBP/USD toward the low at 1.3180, with a prospect of reaching 1.3160.