Market participants focused on preliminary March business activity data. The manufacturing PMI increased from 51.6 to 52.4, beating expectations of 51.5, while the services PMI declined from 51.7 to 51.1 compared to forecasts of 52.0. The composite index also eased from 51.9 to 51.4, indicating signs of slowing economic momentum.

Combined with inflation remaining above the Federal Reserve’s 2.0% target, the data supports expectations that borrowing costs may remain elevated for longer or even increase. Chicago Fed President Austan Goolsbee stated in an interview with PBS News Hour that policymakers need clearer evidence of declining inflation before adjusting policy later this year. Rising energy prices continue to complicate the outlook for monetary easing.

Former Federal Reserve Vice Chair for Supervision Michael Barr echoed this cautious stance, noting that the Fed may need to remain on hold for some time before considering rate cuts. Meanwhile, US President Donald Trump reiterated that negotiations with Iran are ongoing, despite denials from Tehran. Reports also suggest that a 15-point proposal has been delivered to Iranian officials, with preventing nuclear weapons development remaining the central objective.

Eurozone

The euro strengthens moderately against the yen while trading mixed against the US dollar and the pound.

Germany’s March IFO business climate index declined from 88.4 to 86.4, slightly better than expectations of 86.2. The expectations index fell from 90.2 to 86.0, while the current conditions index held at 86.7, outperforming forecasts. IFO President Clemens Fuest noted that the Middle East crisis has significantly reduced Germany’s growth potential.

European Central Bank President Christine Lagarde also warned that even temporary inflation above the 2.0% target due to energy shocks could justify moderate monetary tightening.

United Kingdom

The pound strengthens moderately against the yen and shows mixed performance against the dollar and euro.

February inflation data showed the monthly CPI rising from −0.5% to 0.4%, while the annual rate remained at 3.0%. The Office for National Statistics noted that falling fuel prices offset higher clothing costs, though energy prices are already about 50% higher than February levels. A Citi survey also revealed rising inflation expectations among UK households, increasing from 3.3% to 5.4% — the highest level in 20 years.

Japan

The yen weakens moderately against the dollar, euro, and pound.

Minutes from the Bank of Japan’s March meeting showed that policymakers favor continued tightening as inflation approaches the 2.0% target. However, February inflation data showed cooling price pressure, with headline CPI falling from 1.5% to 1.3% and core CPI from 2.0% to 1.6%. Despite this, analysts still estimate a 60% probability of returning to a hawkish cycle.

Australia

The Australian dollar declines against major peers including the euro, pound, yen, and US dollar.

Inflation data showed the weighted CPI easing to 3.7% in February versus expectations of 3.8%. The trimmed mean indicator fell from 3.4% to 3.3%, remaining above the Reserve Bank of Australia's 2.0–3.0% target range. Analysts expect the RBA to maintain a hawkish stance but hold rates steady at the May meeting.

Oil

Oil prices remain range-bound amid uncertainty surrounding US-Iran negotiations. President Donald Trump confirmed ongoing consultations, while Tehran continues to deny participation. Iranian officials at the United Nations also stated that “non-hostile vessels” may pass through the Strait of Hormuz under coordination with the Revolutionary Guard, potentially stabilizing oil supply.

The American Petroleum Institute reported a build of 2.3 million barrels, compared to expectations of a 1.3 million-barrel draw. The Energy Information Administration report due at 22:30 (GMT+2) is expected to show a 1.3 million-barrel decline, which could support oil prices.