March CPI Rises 3.5% YOY, Strengthening USD

Quick Look:

• US CPI rose by 0.4% month-over-month, with an annual increase of 3.5%.
• March’s Producer Price Index grew by 0.2% month-over-month and up by 2.1% yearly.
• ECB Holds rates, key rates unchanged; potential rate cut signalled by June.
• US retail sales are expected to rise by 0.3% month-over-month next Monday.

The Consumer Price Index (CPI) for March in the US reported a 0.4% increase month-over-month. The rise has led to an annual rise of 3.5% in the currency. Notably, the core CPI excludes volatile items such as food and energy, advanced to 3.8% year-on-year. Thereby surpassing expectations and contributing to a strengthened USD and a cautious sentiment in global markets.

Fed: USD March PPI Up 0.2%, Core at 2.4% YOY

The Producer Price Index (PPI) showed more subdued growth at 0.2% from the previous month, accumulating a 2.1% rise year-over-year. However, the core PPI exceeded projections, registering a 2.4% increase and presenting a complex scenario that may affect future decisions by the Federal Reserve. Reinforcing this outlook, Federal Reserve Chair Jerome Powell stated that the central bank is “in no hurry to cut rates” amid persistent inflation concerns.

ECB Rate Hold; Cuts Possible by June

Meanwhile, the European Central Bank (ECB) kept its key interest rates unchanged at its most recent monetary policy meeting. The main refinancing operations rate remains at 4.50%, with the marginal lending facility at 4.75% and the deposit facility at 4.00%. ECB President Christine Lagarde signalled a possible policy shift, indicating that a rate cut might occur by June if inflation trends towards the ECB’s target, affirming an independent policy direction from the US.

Forex Eyes EUR/USD Dip, Retail Sales Key

The EUR/USD pair has seen a downward trend in the forex markets, approaching the 1.0500 threshold, the lowest since November. Moreover, traders are now eyeing support levels at 1.0600 and resistance at 1.0694, with a keen watch on further developments.

The upcoming US retail sales release next Monday is anticipated with considerable interest. An expected rise of 0.3% month-over-month could further solidify the USD’s strength if results meet or exceed forecasts.

Fed, ECB Diverge on 2024 USD Rate Expectations

Interest rate expectations remain a central theme, with the Federal Reserve moderating its rate cut projections for 2024, whereas the ECB is preparing for a possible 25 basis point reduction in June. Contrasting these stances, the Bank of England appears set for more aggressive rate reductions, highlighting varied approaches among major central banks.

As policymakers and investors decipher these economic signals, attention remains fixed on subsequent data releases and central bank statements, which will inform the financial landscape and strategic market movements.