US inflation cools in February: Impact on the dollar and financial markets

The latest release of the U.S. Consumer Price Index (CPI) for February 2025 has triggered immediate reactions in financial markets, primarily driven by moderating inflation and its potential implications for Federal Reserve (Fed) monetary policy.

The U.S. dollar (DXY) experienced volatility following the announcement, but for now, it remains positive on the day, up 0.2%, breaking a six-day losing streak.

Meanwhile, U.S. equities also found some relief. The S&P 500 posted a moderate rebound of 0.2%, partly because inflation data came in below consensus expectations (0.2% month-over-month vs. 0.3% expected, and 2.8% year-over-year vs. 2.9% projected).

These figures have helped ease inflationary concerns slightly, at least in the short term, and have provided some relief to investors who are optimistic about this renewed slowdown in price increases.

This data reinforces the expectation that the Federal Reserve may slightly soften its monetary policy rhetoric, but it is crucial to remember that a single report does not completely change the economic outlook.

On an annual basis, inflation fell from 3% in January to 2.8% in February, coming in below the market’s 2.9% forecast. Core inflation also eased to 3.1% year-over-year (the lowest level since April 2021), a notable decline from the previous 3.3%.

Even so, the Federal Reserve, while likely welcoming the return of disinflation, will probably maintain caution before leaning fully toward a more dovish stance. Monetary policymakers will continue assessing labor market strength and price trends in essential goods before making definitive and significant commitments, emphasizing that inflationary risks persist due to rising food costs and energy pressures in some regions.

Among the factors that have helped contain inflation are a 4% decline in airfare prices and a 1% drop in gasoline prices. However, the persistence of high energy and food prices could undermine confidence among those expecting a clear downward trend in the cost of living.

Adding to this, wage growth remains moderate (0.1% month-over-month and 1.2% year-over-year in real terms), which, while not exerting excessive pressure on prices, also does not completely eliminate the risk that the Fed must remain vigilant.

The geopolitical backdrop adds complexity to global markets: reports of a potential ceasefire between Ukraine and Russia could boost appetite for risk assets, but any setback would reignite demand for safe-haven assets.
In this environment, emerging market currencies remain exposed to volatility. The economic stability of the U.S. and the evolution of global geopolitical and trade tensions will shape market trends in the coming months, particularly for the dollar and U.S. equities.