CPI Predictions
The CPI is projected to rise by 2.6% year-on-year in March, while core CPI inflation is expected to drop to 3%. On a monthly basis, CPI and core CPI are anticipated to increase by 0.1% and 0.3%, respectively.
Concerns over a potential recession and tariff impacts on inflation are influencing market sentiment. The probability of a Federal Reserve rate cut in May is currently at 37%, up from 10% earlier in April, as officials express concern about rising inflation from tariffs.
Market positioning indicates that the USD faces risks ahead of the inflation release, with expectations for potential movements based on the incoming data. A stronger-than-expected CPI could support the USD, while a weaker reading may assist the Euro in gaining ground against the dollar.
Repercussions Of Rate Cut Expectations
Although the recent cooling in headline inflation has offered a measure of relief, the underlying pressure remains noticeable. The core Consumer Price Index, while edging down to 2.8%, still outpaces the Federal Reserve’s preference. This pattern suggests that markets may be over-anticipating the probability of imminent easing by policymakers. While it’s tempting to read the latest figures as a clear sign that inflation threats are receding, that would overlook the stickier components of CPI, particularly those tied to services and housing.
Powell’s broader comments in recent weeks have done little to steer expectations towards a more dovish direction, pointing instead to a wait-and-see stance. That caution aligns with the uptick in projections for tariff-related price disruptions, especially as trade policy becomes more assertive. With the current administration targeting key sectors through new levies, higher input costs are likely to feed through slowly, distorting inflation prints into the second half of the year.
As for the market reaction, the Dollar Index’s drop by 1.35% highlights an abrupt shift in sentiment. The Swiss Franc’s near 2.4% rally reflects a broader demand for perceived stability, especially when inflation dynamics diverge across major economies. In response, short-term volatility has risen, particularly in currency markets tied closely to interest rate differentials.
