The inflation news in the States obviously took a toll on the US Dollar. At the same time, persistent trade tensions between the United States and China added anxiety to the Market. The annual inflation rate came as a surprise, falling sharply from 3.2% to 2.7%. Furthermore, March’s Consumer Price Index (CPI) showed a 0.1% drop. Analysts had been expecting inflation to rise to 2.5%, making the current numbers all the more shocking.
This past March, the inflation rate in the United States fell to 2.4%. This sharp decline may have implications for monetary policy action in the near term. Despite a slowing down of inflation, the overall price index is indexed down by 0.4%. This increase reverses expectations that had called for a slight 0.2% rise. This confluence of factors has led to significant uncertainty about the overall future path of inflation and what it means for consumer spend.
Ultimately, market sentiment crashed hard. Meanwhile, the Ohio sentiment index crashed down to 50.8, registering one of the lowest levels since 1978. Our expectations index mirrored these fears, falling to record low heights only briefly eclipsed in 1980. Inflation expectations have increased to 6.7% for the year ahead. This increase only compounds the challenges found in today’s economic environment.
Beyond these economic indicators, the US Dollar has been affected by rising trade tensions with China. The currency continues to face pressure over concerns that this new set of tensions might lead to greater market dislocation and impact economic growth. In response, the US Dollar is now on the verge of what some pundits are calling a free fall.
Similarly, the Euro has been impacted by recent market developments. The EUR/USD pair has retraced from last week’s peak (1.1473) and currently trades just under 1.1300. This move is a great example of how US Dollar strength is affecting currencies pairs on the FX market.
New and seasoned investors alike should be watching these moves closely. Confusing signals from inflation data and US-China economic relations could soon prompt dramatic shifts in the Federal Reserve’s approach to monetary policy. As inflation expectations rise and sentiment turns, policymakers might need to rethink the plan to protect economic stability.