On Wednesday, the euro-dollar pair was testing the 16th figure amid a strengthening US dollar. The market is clearly nervous ahead of the meeting between Donald Trump and Xi Jinping, scheduled for Thursday, May 14. At stake is not only the extension of the trade truce with China but also the so-called "Iranian case," given China's potential role as a key external player capable of influencing Tehran's position (and, consequently, the dynamics of Middle Eastern de-escalation). Therefore, the current surge in anti-risk sentiment seems quite justified, as the market has effectively reached a moment when the "compressed spring" of expectations could unwind in either direction.

Nevertheless, the strength of the dollar is explained not only by the increased demand for safe-haven assets. The recently published data on CPI and PPI growth also played a role, reflecting the acceleration of US inflation. Both overall figures and core metrics showed an upward trend, indicating sustained inflationary pressure even after excluding volatile components.

In April, the US Consumer Price Index (CPI) surged to 3.8% year-on-year. This is the strongest growth rate since May 2023. Overall inflation has been rapidly increasing for the second consecutive month: if in March the total CPI accelerated from 2.4% to 3.3%, in April it rose from 3.3% to 3.8% year-on-year. The key driver of this acceleration was, of course, energy, which accounted for over 40% of the index's monthly increase. The energy subindex rose nearly four percent (3.8%) month-on-month and an astonishing 17.9% year-on-year. Specifically, gasoline prices increased by 5.4% month-on-month (following a record spike in March) and immediately by 28% year-on-year.

Last month, the market turned a blind eye to the energy component because its dramatic rise was attributed to the escalation of the Middle Eastern conflict. However, the April report differs significantly from the March data, as energy growth began to gradually seep into the core inflation categories. The consumer price index excluding food and energy costs accelerated to 0.4% month-on-month (the highest since January last year) and to 2.8% year-on-year (the highest since September 2025). Both components came in "green," exceeding forecast estimates. Moreover, the year-on-year Core CPI shows a consistent upward trend for the second consecutive month.

The most alarming signal for the Federal Reserve is the acceleration of inflation in the services sector, where prices are closely tied to the labor market and wages. In particular, airfare prices rose by 20.7% year-on-year (a direct effect of airlines passing on airline fuel costs to consumers). The housing index increased by a relatively modest amount (0.6%), but considering the significant "weight" of this component in the CPI basket, its stability has a meaningful impact on the overall inflation backdrop. Additionally, after a period of stagnation, food prices have once again risen (+0.5% month-on-month), especially for meat, poultry, and vegetables.

Another important point from the April CPI report is that average hourly earnings, adjusted for inflation, fell by 0.5% month-on-month and by 0.3% year-on-year. This indicates erosion of real incomes—marking the first time since April 2023 that inflation "ate away" the growth in annual wages.

Overall, the April CPI indicates a secondary inflation surge. High energy prices have begun to translate into the cost of services and logistics.

The report released on PPI growth in the US only added to the alarming picture. The figures significantly exceeded forecast values, indicating that the American economy is facing inflationary pressure that models have not yet fully accounted for. The overall Producer Price Index (PPI) jumped by 1.4% month-on-month (with a forecast rise of 0.5%). Year-on-year, the overall PPI surged to 6.0% (up from 4.3% in March). This is the strongest growth rate since March 2022. The core PPI also accelerated impressively—up 1.0% month-on-month (with a forecast increase of 0.3%) and 5.2% year-on-year (up from 4.3% in March).

Such a sharp rise in the core PPI indicates that producers are no longer absorbing higher costs through their margins but are beginning to pass them on to end consumers.

It is also worth noting the increase in freight transportation costs. This is an important factor that indicates a potential new wave of CPI, as the overwhelming majority of goods in the US are delivered by truck. Rising logistics costs will ultimately be passed on to consumers, further increasing inflationary pressure.

Overall, the dynamics of CPI and PPI suggest the formation of a "second wave" of inflation. This means that inflation is gradually moving beyond a temporary spike driven by energy prices and is becoming more persistent. The rise in core indicators in both reports shows that businesses are increasingly passing costs onto the end consumer.

And yet, despite such a clearly hawkish macroeconomic signal, sellers are still unable to confidently break through the support level of 1.1690 (the middle line of the Bollinger Bands indicator on the weekly chart). This indecisiveness, in my opinion, stems from expectations surrounding the upcoming negotiations between Trump and Xi Jinping. These negotiations could serve as a potential point of de-escalation not only in the trade-political track between the US and China but could also indirectly influence a broader range of issues, including the Middle Eastern conflict. A successful outcome of the negotiations may reduce global price shocks, which, in turn, could slow inflationary pressures in the US and strengthen "dovish" expectations regarding the Fed's future actions.

Thus, despite the abrupt acceleration of inflation in the United States and the downward impulse in EUR/USD, entering sell positions is only advisable when sellers break through the 1.1690 target and consolidate below this support level. However, it seems traders will prefer to wait for the outcomes of the negotiations in Beijing, within the 17th figure range, where the pair has been trading for the fifth consecutive week.