Inflation in the US accelerated, exceeding expectations and causing concern among investors and policymakers. The Consumer Price Index (CPI) spiked past 4.60%, leading to fears that the Federal Reserve may not be able to cut rates as soon as anticipated. This news caused the dollar to strengthen against major currencies, with the euro falling to the 1.09 level and gold dropping to $2150 per ounce.
The hot inflation data is expected to prompt caution at the upcoming Federal Open Market Committee (FOMC) meeting, with the Fed likely to sound cautious about the timing and number of rate hikes this year. While the base-case scenario remains a rate cut in June, the Fed is expected to cut rates three times before the end of the year.
Despite the concerning inflation data, stock markets remained resilient, with the S&P 500 index reaching a new record high. The bullish trend in big-cap stocks, driven by the fear of missing out on the AI rally, overshadowed the negative impact of inflation.
In the UK, softer-than-expected jobs data boosted expectations of rate cuts by the Bank of England, with the pound falling against the dollar. However, positive GDP numbers and construction output data tempered the pound selloff.
In Japan, wage negotiations are closely watched as any increase in wages could boost inflation expectations and prompt the Bank of Japan to exit negative rates sooner. Positive wage deals by Japanese unions could lead to speculation of a rate hike by the BoJ.
Meanwhile, US crude oil prices rebounded as the API reported a significant fall in oil inventories last week. OPEC’s economic outlook remained unchanged, with oil demand expected to increase this year and next. However, oil bulls remained cautious, with the price of US crude trading below the 200-DMA. A delay in Fed rate cuts could further impact oil prices.
