Key Takeaways
- 💵 The US dollar surged to a 34-year high against the yen after US inflation data increased more than expected in March.
- 📈 Market participants anticipate a delay in the first Fed rate cut to September from June due to rising inflation.
- 🔍 Traders have reduced bets on a Fed rate cut in June and see a higher probability of a rate cut in September.
- 📉 The euro fell 1.1% against the US dollar to $1.0740, marking its biggest one-day decline in about a year.
- 💹 The yen has been pressured by U.S. interest rates and Japan’s near-zero rates, leading to a possible intervention by Japanese authorities.
- 🔄 Core rate of inflation has accelerated, affecting timing of Fed easing
- 🔥 US inflation rose to 3.5% in March, surpassing expectations
- 📉 Global stock markets weakened, with US S&P 500 down 1%
- 🍽️ Food away from home index rose by 0.3% in March
- 🚗 Auto costs, such as car insurance and repairs, have seen significant inflation over the past year
Article
The recent surge of the US dollar against the Japanese yen has been attributed to the higher-than-expected US inflation data in March. Market participants are now anticipating a delay in the first Fed rate cut, shifting the expected timeline from June to September due to the rising inflation rates. Traders have responded by reducing their bets on a Fed rate cut in June and are now seeing a higher probability of a rate cut in September.
The impact of these inflation numbers has also been felt in the euro, which experienced a significant 1.1% decline against the US dollar, marking its largest one-day drop in about a year. The yen, on the other hand, has been under pressure from U.S. interest rates and Japan’s near-zero rates, leading to speculations of a potential intervention by Japanese authorities to strengthen the currency.
Core inflation has been steadily accelerating for four consecutive months, affecting the timing of Fed easing. US inflation soared to 3.5% in March, exceeding expectations and leading to a decrease in expectations of US interest rate cuts. Investec now predicts two quarter-point cuts to interest rates instead of three previously anticipated.
In addition to the impact on currency markets, global stock markets have also weakened, with the US S&P 500 experiencing a 1% decrease. Specific sectors such as food away from home and auto costs, including car insurance and repairs, have seen significant inflation over the past year, further adding to the economic implications of the rising inflation rates.