Weekly labor market data came in positive: initial jobless claims increased from 205.0K to 210.0K against forecasts of 211.0K, the four-week average slipped from 210.75K to 210.50K, and continuing claims declined from 1.851M to 1.819M versus expectations of 1.860M. The figures point to continued resilience in the labor sector, which, together with signs of rising inflation, increases the likelihood that the Federal Reserve will maintain its current monetary policy settings for a prolonged period.
Meanwhile, Federal Reserve Vice Chair for Supervision Michael Barr noted that rising hydrocarbon prices caused by the blockade of the Strait of Hormuz could lift inflation expectations, while the consumer price index has remained above target for five years, giving the regulator another reason to take time to assess economic conditions before returning to a dovish stance. At the same time, Fed Vice Chair Philip Jefferson said that further escalation of the situation could slow consumer and business spending, forcing policymakers to choose what to fight first — accelerating inflation or slowing growth.
Eurozone
The euro is strengthening against the pound, weakening against the US dollar, and showing mixed dynamics against the yen.
According to the European Central Bank’s February consumer inflation expectations report, average price growth over the next 12 months is now seen at 2.5% rather than 2.6%, while the five-year figure remained unchanged at 2.3%. Analysts note that the survey was conducted before the outbreak of hostilities in the Middle East, which triggered a sharp jump in energy prices, so March readings are likely to rise significantly. Meanwhile, Cyprus central bank governor Christodoulos Patsalides said the ECB should not rush to tighten monetary policy in response to higher oil prices, since the baseline economic outlook remains unchanged and there are still no clear signs that inflation is stabilizing. At present, analysts expect three rate hikes this year, starting in April or June.
United Kingdom
The pound is weakening against the euro, yen, and US dollar.
February retail sales data published today showed a decline from 2.0% to –0.4% month-on-month and from 4.8% to 2.5% year-on-year. Current-period figures may reflect a further decline in household incomes due to higher oil prices caused by the escalation of the US-Iran conflict. March consumer confidence also disappointed investors, falling from –19.0 to a yearly low of –21.0, although this was better than the expected –24.0. Households are most dissatisfied with rising gasoline prices and fear further increases in the near term. Meanwhile, Bank of England Deputy Governor Sarah Breeden said she sees less risk of severe inflation than at the start of the Russia-Ukraine conflict in 2022, because the labor market now has excess supply and business activity is slowing, preventing wages from rising. She also warned investors against drawing a direct link between higher energy prices and tighter monetary policy. These comments contradict market expectations, as most analysts still anticipate two or three rate adjustments this year.
Japan
The yen is strengthening against the pound, weakening against the US dollar, and trading mixed against the euro.
According to the Japanese government’s latest economic outlook, the sharp rise in hydrocarbon prices caused by the Middle East crisis could lead to persistent inflationary pressure over the coming quarters, with every 10.0% increase in oil prices adding about 0.3% to consumer inflation. The cabinet also highlighted weaker consumer sentiment and lower output among petrochemical companies as trends that deserve serious attention. In addition, Finance Minister Satsuki Katayama confirmed today that authorities are prepared to take decisive action in the currency market to reduce the impact of speculative trading linked to fluctuations in oil prices.
Australia
The Australian dollar is strengthening against the euro and pound, but showing mixed dynamics against the yen and the US dollar.
On Tuesday at 03:30 (GMT+2), minutes from the latest Reserve Bank of Australia meeting will be released, and investors will be looking for clues about the regulator’s next steps. On March 17, officials raised the interest rate by 25 basis points for the second consecutive time to 4.10%, the highest level in ten years, but the decision passed by only one vote, five to four. As a result, the continuation of the hawkish course may face internal opposition. At the subsequent press conference, RBA Governor Michele Bullock said all board members broadly agree on the need for higher borrowing costs, differing only on timing.
Oil
Oil prices are rising amid ongoing uncertainty over diplomatic efforts to resolve the Middle East crisis.
US President Donald Trump continues to say negotiations are underway, while officials in Tehran deny those claims. At the same time, the Strait of Hormuz remains effectively blocked, with only ships from certain countries that have agreements with Iran and do not support the US-Israel coalition being allowed through. As a result, the supply deficit in the oil market is not easing. Investors are also concerned by reports that the Pentagon may send another 10,000 troops to the Persian Gulf region, which would sharply expand the US military presence and enable ground operations. In response, Iran-aligned Houthi forces in Yemen could block tanker traffic through the Bab el-Mandeb Strait, further worsening fuel supply disruptions.
