US Dollar Strengthens as Inflation Data Reshapes Fed Rate Expectations

Investors and forex traders remain focused on yesterday’s inflation data, which confirmed an increase in price pressure. The Consumer Price Index slowed from 0.9% to 0.6% month-on-month, but rose from 3.3% to a three-year high of 3.8% year-on-year, instead of the expected 3.7%. Meanwhile, the core indicator accelerated from 0.2% to 0.4% against forecasts of 0.3%, and from 2.6% to 2.8% year-on-year against expectations of 2.7%, respectively. Experts note that the upward trend is developing amid rising fuel, food, and rental costs, reducing the probability of monetary policy easing by the US Federal Reserve this year almost to zero and raising concerns about possible tightening in the medium term, as the Middle East crisis continues.

Tomorrow, US President Donald Trump and Chinese President Xi Jinping are scheduled to meet to discuss trade, technology, US arms sales to Taiwan, the US-Iran conflict, and control over Chinese rare earth exports. Analysts see the latter as one of the key issues, as the global economy continues to face a shortage of these raw materials, slowing production in several industries. Overall, the market situation remains uncertain, while quotes are awaiting new drivers for movement.

Eurozone

The euro is weakening against the yen and the US dollar, while showing mixed dynamics against the pound.

Today, data on the EU gross domestic product (GDP) for the first quarter was released: the indicator decreased from 0.2% to 0.1% month-on-month and from 1.2% to 0.8% year-on-year, in line with forecasts amid rising energy prices and higher US trade tariffs. If the Middle East crisis continues to develop, the eurozone economy may keep slowing, which could prompt the European Central Bank (ECB) to shift toward a tighter monetary policy stance.

In addition, industrial production in March increased by 0.2% against expectations of 0.3% month-on-month and adjusted by –2.1% against forecasts of –1.7%, respectively. According to a Reuters survey of leading economists on the regulator’s next steps, most respondents believe that the deposit rate will be raised next month and at least one more time this year.

United Kingdom

The pound is weakening against the yen and the US dollar, while showing mixed dynamics against the euro.

The political crisis in the United Kingdom continues to develop. According to the latest polls, 93 Labour Party MPs have already called on Prime Minister Keir Starmer to resign, although 158 still support their leader. Today, it became known that Health Secretary Wes Streeting is preparing to leave his post on Thursday in order to officially put forward his candidacy for party leader. He is likely to secure the required number of MPs — 81 — to begin the leadership change process, which is causing concern among most market participants. Investors believe that any new leadership could lead to weaker fiscal discipline. JPMorgan Chase & Co. CEO Jamie Dimon said that this could trigger a review of the company’s investment policy and the cancellation of plans to build an office tower in London.

Japan

The yen is weakening against the US dollar but strengthening against the pound and the euro.

Today, March data on Japan’s current account balance was published. The seasonally adjusted figure rose from 2.70 trillion yen to 3.90 trillion yen, instead of the expected 2.95 trillion yen, while the non-adjusted figure increased from 3.93 trillion yen to 4.68 trillion yen against forecasts of 3.87 trillion yen. Meanwhile, former Bank of Japan Governor Haruhiko Kuroda said that recent interventions prevented the national currency from falling below 160.0 yen per dollar, but are unlikely to provide long-term support. He noted that the 120.0–130.0 yen per dollar range is considered equilibrium and based on fundamental economic indicators, and the regulator is likely to use the mechanism again to reach target levels.

Australia

The Australian dollar is strengthening against the euro, yen, pound, and US dollar.

Investors are assessing labor market data for the first quarter. The Wage Price Index remained at 0.8% quarter-on-quarter and slowed from 3.4% to 3.3% year-on-year. Overall, the negative dynamics are developing due to the private sector, where wage growth stands at 3.2%, while remaining above the Reserve Bank of Australia’s inflation target range of 2.0–3.0%. This increases the likelihood of monetary policy tightening in the near future.

Oil

The morning decline in oil prices was replaced by growth under the influence of several opposing factors.

Pressure on the asset comes from OPEC’s downgrade of its forecast for global hydrocarbon demand growth this year from 1.38 million barrels per day to 1.17 million barrels per day. However, in 2027, the indicator is expected to increase by 200.0 thousand barrels per day to 1.54 million barrels per day. On the other hand, positive dynamics are supported by expectations ahead of the meeting between US President Donald Trump and Chinese President Xi Jinping. The leaders intend to discuss a reduction in trade tariffs totaling 60.0 billion dollars, which could accelerate the global economic recovery. Meanwhile, according to the American Petroleum Institute (API), crude oil inventories changed by –2.188 million barrels, exceeding preliminary estimates of –1.650 million barrels.