The US inflation report was quite contradictory. All components of the release came either in line with forecasts or in the red. Ahead of time, it should be noted that such a result is not in favor of Federal Reserve hawks and, accordingly, not in favor of the greenback. It cannot be said that the release "sank" the US currency (far from it), yet it did not become a catalyst for its strengthening.

According to the published data, the overall US consumer price index in December predictably accelerated to 0.3% month-on-month after a 0.2% decline in November. In year-on-year terms, the index remained at the previous month's level, i.e., at 2.7%. However, core CPI, excluding food and energy, was in the red — both year-on-year and month-on-month. In monthly terms, the indicator was 0.2% (the third month in a row at this level), while most analysts had forecast a rise to 0.3%. In annual terms, the core index remained at November's level (2.6%), contrary to forecasts of a rise to 2.7%. Although core inflation exceeds the Fed's target, it is now at its lowest level since March 2021.

It is worth noting that the December CPI can be considered the first relatively "clean" report after the shutdown, since data collection finally proceeded in the normal manner (in October–November data were either modelled or simply carried forward, which gave them a distorted character). And although the December release is also not completely sterile (holiday discounts, goods volatility, etc.), it nevertheless became the first representative report after the 2025 shutdown.

Why did EUR/USD traders effectively ignore the CPI publication?

First, the report did not change the risk balance: it was neither weak enough to accelerate expectations of Fed rate cuts nor strong enough to strengthen hawkish Fed sentiment.

Second, the December CPI rise was driven mainly by components with low sensitivity to Fed monetary policy (housing, certain services, medical expenses). Such an inflation structure again does not demand urgent central bank intervention and therefore does not create conditions for a tightening of central bank rhetoric.

Third, the most volatile CPI components — energy and food — showed moderate increases. This factor also played a role: the dollar, which has often strengthened on "inflation acceleration fear," did not receive support here.

Overall, the December report signals that market fears of a spiralling acceleration of inflation are (for now) not materializing. And although the disinflation process remains very gradual, it allows the Fed to keep a cautious easing trajectory.

All this suggests that the Fed will almost certainly keep the policy rate unchanged at the January meeting but may cut rates in the first half of this year. If CPI freezes at current values (or begins to slow), everything will depend on the dynamics of the US labour market. Weak NFP reports will increase the chances of monetary easing in spring or early summer.

Can one consider longs on EUR/USD based on the contradictory CPI report? In my view — no. Not because inflation sided with the greenback, but because Trump again alarmed the markets with a belligerent statement regarding Iran. During the US session on Tuesday, the US president said that American aid to Iranian protesters is "already on the way," adding that he has halted all negotiations with Tehran.

Notably, earlier in the day, rumors circulated that Washington would avoid using force against Iran and would attempt diplomacy. But judging by the statement by the White House chief, instead of diplomats, soon "the guns will speak." That means the market will again see a spike in risk-off sentiment, and the dollar will regain demand as a safe haven.

The market reaction is illustrative: traders essentially ignored the CPI release but reacted quite strongly to Trump's bellicose post on social media. This indicates that geopolitics can again "return to the big game" in terms of influence on the FX market — if the president's words are backed by actions (i.e., if the US actually strikes Iran).

The situation is hanging in the balance, so it is advisable to take a wait-and-see position on EUR/USD for now. If the escalation scenario is not confirmed (for example, if Iranian authorities make concessions to protesters), the dollar will remain under pressure amid the rather contradictory CPI report. But if the situation in Iran intensifies — with US involvement — the greenback will strengthen across the market, and EUR/USD will again find itself in the 1.15 area.