As long as the US economy remains strong, the “Sell America” strategy holds little practical value. The S&P 500 index is rising, and EURUSD bears are maintaining their position. Will US inflation data hurt the euro? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The more stable the US economy, the stronger the US dollar.
- The futures market predicts a 45 bp Fed rate reduction in 2025.
- Scott Bessent may become the new Fed chairman.
- Trading the EURUSD pair is relevant on the breakout of the 1.137–1.1445 range.
Daily US Dollar Fundamental Forecast
Given the recent rise in US stock indices, it seems counterintuitive to discuss a sell-off of all American assets. According to a survey conducted by Bank of America, retail investors have been net buyers of stocks for 25 of the past 26 weeks. The S&P 500 narrowed the gap to its record high of 2% amid a still-strong economy and another agreement between Washington and Beijing. Against this backdrop, EURUSD bears have remained resilient in the market.
Following the release of the US labor market report, investors concluded that the US economy was robust. Consequently, the derivatives market lowered the anticipated scope of the Fed’s monetary expansion to 45 basis points in 2025, suggesting only two rate cuts, a move that has also provided support to the US dollar.
Fed Rate Cut Expectations
Source: Bloomberg.
The estimate may fall even further if the disinflation trend reverses. According to Bloomberg experts, US inflation will accelerate in May amid the US administration’s introduction of large-scale tariffs on “Liberating Day.” Meanwhile, Goldman Sachs forecasts core CPI growth of 2.9% y/y. The indicator will increase by 0.35% each month, leading to inflation exceeding 4% during the year.
US Inflation Change
Source: Bloomberg.
The Fed will likely have to maintain its current cautious approach. Regardless of Donald Trump’s repeated calls for the US regulator to lower interest rates, the central bank is not expected to make significant changes to its current policy, including a one percentage point change following the release of US employment statistics. However, Jerome Powell has chosen to proceed with his approach rather than being influenced by the president’s persuasions. Fortunately, the Fed chief’s contract is set to expire in 2026, and the US administration is actively seeking a suitable replacement. Notably, the list of contenders includes the current Treasury Secretary, Scott Bessent.
Given the number of unexpected insights the data has revealed, it cannot be ruled out that US inflation will slow in May. The primary factors contributing to this shift are the cooling domestic demand and an increase in supply due to the front-loading of US imports.
It is challenging to predict the market’s response. Accelerating inflation in the US could lead to a rally in Treasury yields and a plunge in the S&P 500 index. The Sell America will re-emerge as a central focus, and the US dollar is likely to face strong headwinds in this scenario. Conversely, a stable securities market, accompanied by a decrease in the anticipated scope of monetary expansion by the Fed, could bolster the greenback.
Daily EURUSD Trading Plan
In my professional assessment, the EURUSD pair is poised to undergo significant fluctuations in response to the upcoming release of US inflation data. The strategy of selling the euro at 1.137 and buying it at 1.1445 may seem risky. However, as the saying goes, nothing ventured, nothing gained.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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