Germany's final February inflation rate was confirmed at 1.9%, down from 2.1% in January, primarily driven by lower energy prices. Energy costs fell by 1.9%, with declines in natural gas, electricity, district heating, and heating oil. Food price growth slowed from 2.1% to 1.1%, as significant drops in edible oils, potatoes, and dairy products offset increases in confectionery and meat prices. Goods inflation eased from 1% to 0.8%, while services inflation held steady at 3.2%. Core inflation, excluding food and energy, remained stable at 2.5%. On a monthly basis, the Consumer Price Index rose 0.2% in February, up from a 0.1% increase the previous month, driven by higher costs for energy, food, administrative fees, and package tours. The EU-harmonized CPI rose 2.0% year-on-year and 0.4% month-on-month, both in line with initial estimates.
European Central Bank Governing Council member and Bundesbank President Joachim Nagel stated that if fuel price increases resulting from the Iran conflict persistently push up eurozone inflation, the ECB will act swiftly and decisively. Investors had previously bet that major central banks might be forced to tighten policy again, even briefly pricing in two ECB rate hikes on Monday. However, these expectations partially reversed after U.S. President Donald Trump stated the conflict was "very thoroughly" contained. Nagel noted that Trump's remarks "provided some hope," but soaring energy prices have worsened the economic outlook and heightened inflation risks. "We must remain highly vigilant," Nagel said. "If the current rise in energy prices translates into broad consumer price inflation over the medium term, the ECB Governing Council will act in a timely and decisive manner."
Markets expect the ECB to keep interest rates unchanged at next week's meeting and to prepare economic growth and inflation forecasts accounting for ongoing Middle East tensions. Money markets currently assign a slightly over 50% probability of a rate hike by year-end. Like many colleagues, Nagel expressed support for a "wait-and-see approach," but recent turmoil may have ended debates about inflation falling below the ECB's 2% target. "The debate about inflation undershooting the target is likely over for now," Nagel said. "However, given the current volatile situation, it is too early to reliably assess the medium to long-term consequences."
ECB Governing Council member Peter Kažimir also stated that geopolitical conflicts and their spillover effects on inflation could force the ECB to initiate rate hikes earlier than anticipated. While he believes the ECB is currently in a "favorable position" and no action is needed at next week's meeting, he expressed particular concern that collective memories of the 2022 inflation shock have significantly lowered thresholds for businesses to raise prices and consumers to demand higher wages, with upside risks now dominating the economic outlook. Kažimir further noted, "Although I believe the ECB's reaction point is closer than many think. I don't want to speculate whether it's April or June, but we are ready to act if needed." This hawkish stance contrasts sharply with current market pricing. Due to soaring energy costs from Middle East conflicts, traders had leaned toward the ECB initiating its first rate hike in September or later. However, Trump's suggestion that the war might end "soon" prompted markets to significantly reduce bets on two 25-basis-point rate hikes this year.
In the U.S., the Consumer Price Index rose 2.4% year-on-year in February, matching expectations and the previous reading. The monthly increase was 0.3%, in line with forecasts but slightly above January's 0.2% rise. Core CPI held at 2.5% annually, the slowest pace in nearly five years, while the monthly core rate slowed from 0.3% to 0.2%, both meeting expectations. The data indicated that core inflation eased as expected in February, showing price pressures moderated before the Middle East escalation. After a period of stubborn inflation last year, U.S. price increases have recently shown a general cooling trend. However, recent Middle East conflicts driving up oil, gasoline, and fertilizer costs could renew cost-of-living pressures for American households, especially with midterm elections approaching.
Structurally, core services remained the main driver of inflation, but related increases are slowing noticeably. Core goods prices were largely stable, while energy prices showed signs of picking up. Since the recent surge in WTI crude oil occurred mainly in March, February's CPI data did not reflect this impact. Citigroup noted in a research report that the inflationary push from rising energy prices is almost certain to materialize in March data. According to Citigroup, as of March 8, the U.S. average retail gasoline price had risen about 17% since the end of February. Based on this, Citigroup assumed a monthly average gasoline price increase of about 15% for March, expecting the overall CPI energy component to rise about 7% month-on-month. Lagging effects on airfares and core goods will reflect the second wave of oil price impact on inflation in the second quarter. Citigroup expects airfare to rise about 10% to 15% year-on-year by mid-year, with core goods prices also facing upside risks in Q2.
At the policy level, the Federal Reserve is widely expected to keep rates steady at next week's meeting. This view was initially based on gradually receding inflation, but with the war potentially pushing inflation higher in the short term, some investors now believe the Fed may need to maintain high rates for longer. On the other hand, policymakers must still balance lingering vulnerabilities in the labor market.
On Thursday, March 12, the eurozone has no major data or events scheduled. Attention turns to the U.S. Initial Jobless Claims report due at 20:30 Beijing time.
As the Iran conflict intensifies, the European economy faces dual pressures of rising inflation and slowing growth. ECB officials emphasized on Wednesday their commitment to decisive action against persistent inflation but downplayed the need for immediate rate hikes, calling for calm observation. Inflation trends diverge between Germany and France, with stagflation risks emerging. Data from Germany's Federal Statistics Office showed the February inflation rate edged down to 2.0%, slightly below January's 2.1%. Bank of France Governor François Villeroy de Galhau stated that although the war would lead to slightly higher prices and slower growth, French inflation would remain low. He dismissed "stagflation" concerns, stressing that economic activity has not stalled. France predicted full-year inflation of 1.3% last December, well below the ECB's 2% target, but Villeroy acknowledged this figure might rise "slightly."
Bundesbank President Joachim Nagel warned that soaring energy prices have worsened the economic outlook and increased inflation risks. He cautioned that if energy price increases translate significantly into broad consumer price inflation, the ECB will act promptly and decisively. Nagel indicated that discussions about missing inflation targets may be paused for now, but it is too early to assess long-term consequences amid current turbulence. ECB Vice President Luis de Guindos acknowledged that financial market volatility has amplified economic shocks, making forecasting exceptionally difficult. He said the central bank may consider multiple scenarios next week, similar to its approach after Russia's invasion of Ukraine two years ago.
Market expectations have reversed, with rate hike bets resurging. Due to the war, oil prices have surged nearly 50% since the start of the year, leading financial markets to bet the ECB will take a tougher stance on high inflation. Money markets now see a slightly above 50% chance of the policy rate rising to 2% by year-end, contrasting sharply with expectations two weeks ago of no change this year. Traders even briefly priced in two rate hikes this year on Monday but reduced bets after President Trump described the conflict as "very thoroughly" contained. ECB President Christine Lagarde pledged to take all necessary measures to control inflation and prevent a repeat of the 2022-2023 inflation surge. Hawkish policymaker Peter Kažimir said the ECB's response could be faster than many expect. Economists project that if energy prices remain high, eurozone inflation could accelerate to 2.5% this year. Lessons from the ECB's slow response after the 2022 Russia-Ukraine war, which led to double-digit inflation, may prompt quicker action this time.
Spain has permanently recalled its ambassador to Israel, further escalating a diplomatic standoff due to Spain's opposition to U.S. and Israeli attacks on Iran. Spain announced on Tuesday that its embassy in Tel Aviv will be led by a chargé d'affaires. Relations have been highly tense since Israel's offensive on Gaza in October 2023. Israel recalled its ambassador to Spain last May protesting Spain's recognition of a Palestinian state. Earlier this month, Israel's foreign minister accused Spain of opposing the war, saying it "sides with tyrants."
Italian Prime Minister Giorgia Meloni issued her strongest criticism to date of the U.S. and Israeli war on Iran on Wednesday, calling it part of a growing, dangerous trend of unilateral intervention "outside the bounds of international law." Meloni, who has close ties with President Trump, stated that Iran must not be allowed to develop nuclear weapons, warning of "serious consequences" for global security and potential nuclear threats to Europe. Meloni compared the Middle East conflict to Russia's invasion of Ukraine, noting both have triggered broader global instability. She announced Italy is providing air defense assets to Gulf countries hit by Iranian airstrikes to protect tens of thousands of Italian citizens and about 2,000 troops stationed there.
German Economy Minister Katarina Reiche announced on Wednesday that Germany will release part of its oil reserves, contributing 2.64 million tons, in response to the International Energy Agency's largest-ever coordinated stockpile release. She also confirmed government plans to limit how often gas stations can raise prices and introduce stricter antitrust regulations for the industry. Reiche stated that oil supply conditions are tight due to difficulties transiting the Strait of Hormuz. Germany legally maintains oil and product reserves covering 90 days of demand, and there is currently no supply shortage. The IEA's coordinated action comes as countries respond to oil price spikes triggered by the U.S.-Israel war with Iran.
On Wednesday, European stocks broadly declined, with the pan-European STOXX 600 index closing 0.6% lower. Investors continued assessing the economic impact of the Middle East conflict entering its twelfth day and digested U.S. inflation data. Germany's DAX index fell the most, down 1.4%, dragged by an 8% drop in Rheinmetall shares after its 2026 profit margin and free cash flow forecasts fell short of analyst predictions. The defense sector fell 1.8%, and industrials dropped 1.2%.
Middle East hostilities escalated further. Iran's military warned the world to prepare for oil prices reaching $200 per barrel, three more ships were attacked in the Persian Gulf, and Tehran fired on Israeli and regional targets. This contrasted with Tuesday's de-escalation expectations sparked by Trump's "war will end" comments, which had driven the STOXX 600 to its best single-day performance in nearly a year. The International Energy Agency agreed to release 400 million barrels of oil, the largest intervention in history, aimed at curbing prices. Energy stocks bucked the trend, rising 1.6%, the only gaining sector in the STOXX 600. However, analysts warned that if shipping through the Strait of Hormuz does not normalize, policy measures may be insufficient. Barclays cautioned that if oil remains around $100 per barrel, the STOXX 600 could fall to 550 points.
The banking sector was hit hard, falling 0.6%. Among individual stocks, UK's Legal & General fell 6.8% after annual profits missed expectations, while construction group Balfour Beatty rose about 9% after forecasting high-single-digit operating profit growth for 2026. ECB policymakers acknowledged economic risks from soaring oil prices, pledging swift action if high inflation persists. Money markets now expect a rate hike this year, whereas before the conflict, slight cuts were anticipated. Germany's February inflation eased to 2.0%, and U.S. inflation data met expectations but was war-affected.
The Middle East conflict continues to intensify, causing severe energy market volatility. Iran attacked merchant ships on Wednesday and warned the world to prepare for oil prices reaching $200 per barrel. Simultaneously, the International Energy Agency recommended a massive strategic reserve release to alleviate one of the worst oil shocks since the 1970s. The war, triggered by joint U.S.-Israeli airstrikes, has lasted nearly two weeks, causing about 2,000 deaths, spreading to Lebanon, and disrupting global energy markets and transportation. Despite the Pentagon calling it the most intense air campaign since the war began, Iran continued firing on Israeli and Middle Eastern targets, demonstrating retaliatory capability. Three ships were attacked in Gulf waters, with Iran's Revolutionary Guard claiming it fired on vessels disobeying orders. Israel's Defense Minister said operations have "no time limit," while Trump suggested the campaign would not last long, stating there is "almost nothing left to strike" in Iran.
The FBI warned of possible Iranian drone attacks on the West Coast, but Trump said he is not concerned about domestic attacks. The U.S. State Department warned that Iran and its allies might attack American oil and energy infrastructure in Iraq. The Strait of Hormuz crisis deepened, prompting an IEA emergency response. Sources revealed Iran has deployed about 12 naval mines in the Strait of Hormuz, complicating reopening the channel that carries about one-fifth of global oil shipments. The U.S. demanded Iran clear the mines immediately or face military consequences. The IEA recommended releasing 400 million barrels from global strategic reserves, the largest intervention ever, already endorsed by Washington. The U.S. Interior Secretary said oil companies will soon announce production increases.
An Iranian military spokesman explicitly threatened long-term economic disruption: "Be prepared for oil to hit $200, because oil prices depend on regional security, and you have undermined it." After a Tehran bank office building was attacked, Iran said it would retaliate against banks doing business with the U.S. and Israel. A Thai cargo ship caught fire at sea, with three missing, and two other vessels were attacked, bringing the total merchant ships hit since the war began to 14.
Iran's new leader sustained minor injuries in the war and is receiving treatment. The new leader has not appeared publicly since taking office, with state television calling him a "war casualty" who lost his father, mother, sister, and wife in the first wave of airstrikes. An Israeli official assessed he received light injuries. Although Trump called for an Iranian popular uprising, the U.S.-Israeli hope that the theocratic system would be overthrown by protests has not materialized. Iran's police chief warned anyone taking to the streets would be treated as an enemy, with security forces prepared to open fire. A senior Israeli official revealed that leaders privately accept the view that Iran's ruling system can withstand the war's test. Two Israeli officials said there is no indication Washington is nearing an end to the war.
The Russia-Ukraine conflict persists, with British-made missiles striking Russia. Russian drones attacked a civilian enterprise in Kharkiv, Ukraine, killing two and injuring five. Kharkiv, 30 km from the Russian border, has been a frequent target of Russian airstrikes. Russia's Defense Ministry said its forces shot down two UK-supplied Storm Shadow missiles. Ukraine earlier stated it used these missiles to strike a key factory in Russia's Bryansk producing missile components, killing 6 civilians and injuring 42. The Kremlin accused British experts of participating in the attack and said it would "consider" the UK's role. Russia claimed the missile launch could not have occurred without British expert involvement. Russia's Foreign Ministry demanded a UN assessment of the incident. Ukrainian President Volodymyr Zelenskyy said Kyiv targeted Bryansk's most important military factory, which produces electronic components for Russian missiles.
Short-term EUR/USD price movement is expected within the range of 1.1615-1.1560. On Wednesday, March 11, the euro rallied then fell back, retreating to around 1.1560 after touching 1.1645 intraday. Although U.S. February CPI data showed cooling inflation, the market had largely priced this in, resulting in muted overall volatility. Meanwhile, the inflationary pass-through from rising oil prices will only begin appearing in March data, significantly reducing sensitivity to February's CPI figures. Additionally, the Fed is widely expected to maintain a hold stance in the near term. If shocks intensify, stagflation risks—simultaneous inflation and slowing growth—could put the Fed in a dilemma, further delaying the window for rate cuts. This expectation provides potential support for the U.S. dollar to remain firm.
The Middle East situation-driven oil price surge is reshaping expectations for U.S. inflation. While most analysts believe sustained shocks pose the real threat, short-term inflationary pressures from energy prices are almost certain to materialize in March data. Citigroup's March 9 report showed the U.S. average retail gasoline price had risen about 17% from end-February as of March 8. Citigroup thus assumed a monthly average gasoline price increase of about 15% for March, projecting the overall CPI energy component to rise about 7% month-on-month. Lagging effects on airfares and core goods will reflect the second-wave oil price impact on inflation in Q2. Citigroup expects airfares to rise about 10%-15% year-on-year by mid-year, with core goods prices also facing upside risks in Q2.
Bank of America provided a longer-term historical perspective. Its March 6 research noted that over the past 50 years, only "significant and sustained" oil price spikes triggered lasting inflation cycles. Current market expectations are for short-term inflation increases but long-term stability. Citigroup pointed out that if oil prices remain high, inflation pressure will seep into core components, with airfares being the most sensitive transmission node. Due to Middle East tensions limiting aviation fuel supply, jet fuel prices have risen sharply recently. Airfare typically lags jet fuel prices by 1-3 months, and substantial fare increases only occur if high jet fuel prices persist for several weeks. Citigroup slightly raised near-term airfare expectations, projecting year-on-year increases of about 10%-15% by mid-year, with seasonal Q2 price declines potentially narrowing.
Regarding core goods prices, Citigroup believes that with limited new tariffs recently, goods price upward pressure was expected to ease in coming months. However, energy price increases have clearly raised risks of further goods price strength around Q2. Citigroup stated that if PPI goods prices show strong growth for another month or two, it would likely prompt an upward revision to core goods forecasts in CPI and PPI. The path of inflation expectations is crucial for Fed policy judgment. Current market reaction shows a split: short-term expectations have risen with gasoline prices, but 5-year/5-year forward inflation expectations have recently dipped, reflecting expectations of slowing growth and a weaker labor market.
Bank of America's research corroborates this view. Its analysis indicates that over the past 50 years, market inflation expectations are sensitive to oil prices at high frequencies, but in most oil price surge events, expectation increases did not persist. Only post-COVID combined with the Russia-Ukraine war, and OPEC production cuts in 1999, among few cases, triggered lasting expectation repricing. Regardless of how the current oil price shock unfolds, both Citigroup and Bank of America emphasize that labor market conditions are the core constraint determining whether inflation increases can persist. Citigroup stated that a weaker labor market will limit businesses' ability to raise prices, making the secondary pass-through effect of this oil shock on core inflation weaker than in the post-COVID inflation cycle.
Their latest forecasts show core PCE rising about 3.0% year-on-year in Q1 2024, gradually declining thereafter, potentially reaching about 2.4% by end-2026—still above the Fed's 2% target. In this context, Bank of America believes the Fed will likely maintain a hold stance near-term. If the oil shock is limited in scale and duration—below $100/barrel and lasting less than six months—the Fed tends to look through energy price volatility temporarily. But if the shock intensifies and persists, stagflation risks could force the Fed into a dilemma, further postponing the rate cut window.
For the euro, the ECB meets next week for its monetary policy decision, with markets closely watching how policymakers respond to geopolitical uncertainty-driven energy cost pressures and growth slowdown risks. Recent policy signals indicate the ECB prefers a wait-and-see stance, avoiding overreaction to short-term shocks. However, some Governing Council members also stated that if persistently high oil prices push up inflation, the ECB will "act decisively." The Iran conflict has lasted about two weeks. Concerns over potential supply disruptions in the Strait of Hormuz have driven oil prices higher quickly. Rising energy prices could boost overall price levels via cost-push channels while dampening business investment and consumer spending, weakening growth momentum. But if the conflict resolves quickly, the impact will likely be short-lived. In contrast, prolonged supply disruptions would amplify second-round effects, especially with services inflation already at 3.4%. ECB policymakers clearly stated that recent oil price declines provide breathing room for policy adjustment, but uncertainty remains, and any lasting energy price increase could alter inflation expectation trajectories.
ECB Governing Council member Villeroy explicitly stated that next week's meeting should not anticipate a rate hike, emphasizing the need for calm amid the Iran conflict. The conflict has increased uncertainty, possibly leading to slightly higher inflation and lower growth, but French inflation will remain low with no stagflation risk apparent. Another Governing Council member, Nagel, noted that inflation risks have risen and the economic outlook has deteriorated. If energy price spikes translate into persistently higher inflation, the ECB will act decisively.
ECB Governing Council member Kažimir clearly stated that geopolitical conflicts and their inflation spillovers are forcing the ECB to potentially hike rates earlier than expected. While he believes the ECB is in a "favorable position" now and no action is needed next week, he is particularly concerned that collective memory of the 2022 inflation shock has significantly lowered thresholds for price hikes and wage demands, with upside risks dominating the economic outlook. Kažimir further said, "Although I believe the ECB's reaction point is closer than many think. I don't want to speculate whether it's April or June, but we are ready to act if needed."
The conflict's dual impact on the eurozone involves both cost-push and demand-suppression. Rising energy prices directly increase production costs, pressuring services and manufacturing PMIs, while slowing growth dampens demand-side inflationary pressures, creating a self-adjusting mechanism. France's low inflation data exemplifies this balance, with its relatively mild energy dependency and price pass-through mechanisms avoiding region-wide stagflation. Nagel specifically mentioned that if energy shocks persist, inflation concerns would take priority over growth slowdowns, requiring policymakers to closely monitor wage developments and expectation anchoring. Current eurozone services inflation has accelerated to 3.4%, but energy prices are still negative year-on-year, indicating transmission hasn't broadly spread. The ECB's gradual approach aims to preserve policy flexibility until data becomes clearer.
Previously, traders, judging inflation pressures from Middle East energy spillovers as persistent, leaned toward a September start for hikes. But Trump's "war may end soon" remark reduced long-term risk expectations, cutting bets on two 25-bp hikes this year from around 55% to below 35%, flattening the rate futures curve. The ECB's current framework focuses on balancing uncertainty and historical lessons, emphasizing optionality over preset paths. This helps markets understand how the central bank dynamically adjusts between rising inflation risks and a worsening growth outlook, avoiding letting single events dominate pricing logic.
Technical indicators show on the 4-hour chart, the euro recently fell back below the Bollinger Band middle band, with the 4-hour RSI dropping below the 55-45 balance zone, indicating weak price action and bearish momentum dominance. This suggests that although prices and momentum have recovered somewhat, gains will remain constrained by potential resistance until key levels are breached. Meanwhile, the Bollinger Band width and three-band lines remain in a low range, with channel slope limiting short-term euro rebound space. Additionally, although the MACD momentum indicator shows narrowing signs below the zero line, it remains in bearish territory, indicating the current move is more about corrective rebound and recalibration after concentrated selling rather than a substantial trend change. Therefore, if MACD momentum strengthens again in negative territory, be alert for reinforced bearish momentum leading to extended downside risks. Conversely, if MACD tests above the zero line and expands in positive territory, momentum and volume resonance could support a technical rebound probability. The Bollinger Band upper band is currently near 1.1675, acting as dynamic resistance. The middle band is near 1.1595, serving as the core pivot for bull-bear strength differentiation. The lower band is near 1.1515, providing dynamic support. The euro needs to hold above the middle band to signal positive momentum recovery. Overall, composite technical indicators reflect negative momentum bias, depicting a shift from "bullish correction" to "neutral-bearish" technical picture, consistent with "price recalibration after high positioning and volatility pressure release." Thus, until key technical resistance is broken, subsequent structure favors range consolidation, with upsides likely being technical mild rebounds and tests. But if the upper band is repeatedly tested without volume-supported holds, extended downside risks amplify.
Technically, on the 4-hour chart, the current price structure shows resistance near 1.1615. For the euro bulls to strengthen the current recovery posture, they need to consolidate above the 1.1615 area and drive a second advance through momentum-volume resonance, potentially opening upside space toward the 1.1650 target upon breaking this resistance. However, until the euro sustainably holds above 1.1615, trading logic signals caution against bearish dominance triggering extended declines after corrective rebounds.
From a risk perspective, on the 4-hour chart, the current price structure shows static support near 1.1560. If the euro closes below this area on the 4-hour chart, bearish dominance could intensify, risking a return to test the 1.1530 target zone.
In summary, the Middle East geopolitical conflict's dual impact on the eurozone involves cost-push and demand-suppression, while the ECB's steady stance削弱 market pricing of earlier rate hike expectations, pressuring the euro. In contrast, although U.S. February CPI showed cooling inflation, markets widely expect short-term energy price increases to materialize in March data. Simultaneously, the Fed is expected to hold rates steady next week. This expectation supports a firm U.S. dollar. Thus, markets are in a tug-of-war phase amid intertwined fundamentals, with overall sentiment notably "neutral-cautious," keeping exchange rates within recent ranges. Technically, as the euro has risen to阶段性 highs, profit-taking is unsurprising without further "fundamental confirmation." If pullbacks accompany significant volatility, it may indicate rising risk pricing of macro narratives. Additionally, the euro recently faced clear resistance around 1.1800, both a key resistance pivot and a crucial retracement zone from the 1.2080 peak. Failure to break this easily triggers some capital viewing it as a阶段性 pressure area. Therefore, potential technical risks suggest bullish defensive positions must hold the 1.1560 area to provide potential momentum recovery and help lift prices from near to far term. If this support is lost, beware of reinforced bearish momentum leading to a retracement toward the 1.1530 target for correction. Moreover, for bulls to initiate a strong recovery, they need to consolidate above 1.1615 and achieve secondary volume-momentum resonance to potentially challenge the 1.1650 target.
Short-term EUR/USD price movement reference: Upside: 1.1615-1.1650 Downside: 1.1560-1.1530
Proper capital (position) planning, risk control (stop-loss), and maintaining personal trading "discipline" are paramount. Remember, money isn't made in a day, but can be lost in one!
Note: The above suggestions are for reference only. Investing carries risks; proceed with caution.