The U.S. dollar declined sharply, dropping -1.50% against the New Zealand dollar, -1.35% against the euro, and -1.03% versus the Australian dollar. The dollar’s weakest performance was a -0.60% fall against the yen.
Softer inflation readings contributed to this decline, with the PPI Final Demand falling -0.4% month-on-month, while core PPI decreased -0.1%. Estimates indicate that Core PCE likely rose only 0.1% in March, slowing the annual rate to 2.6%.
Tariff Increases On Chinese Imports
Tariff increases on Chinese imports may reignite inflationary pressures soon. Despite the disinflation trend, U.S. Treasury yields rose, with daily changes showing increases across all maturities.
U.S. equities had strong weekly gains, with the S&P 500 rebounding significantly after earlier declines. The S&P 500 and NASDAQ saw their best week since late 2023 and early 2022, respectively.
Fed officials have expressed readiness to stabilise markets but remain cautious regarding rate cuts due to economic uncertainties. Warnings from the New York Fed President indicate that new tariffs may elevate inflation this year, predicting economic growth to slow.
Next week’s economic data releases, including trade balances and central bank meetings, will be important for understanding global dynamics and monetary policy outlooks.
Producer Price Index
The recent pullback in the U.S. dollar, especially against commodity-linked and European currencies, reflects a shift in inflation expectations and a recalibration in interest rate outlooks. As pressure eases on prices—evidenced by a marked drop in producer inflation on both headline and core measures—it becomes clearer that the underlying momentum in U.S. price growth is losing steam for now. The Producer Price Index hasn’t just slowed; it contracted more sharply than forecasts suggested, shaking conviction in nearer-term rate hikes.
We should take particular note of the rise in long-end Treasury yields despite this disinflation. That disconnect suggests bond markets might be adjusting not only for shifting inflation expectations, but also for increased supply concerns and potential changes in global capital flows. There’s little ambiguity—rates are climbing while inflation data softens. This divergence introduces more complexity into forward rate pricing, and it underlines the need to watch market-implied probabilities more closely over the coming sessions.
Lifting tariffs on Chinese imports is unlikely to be dismissed as temporary noise. From our point of view, reintroducing price pressure through trade policy has a high potential to offset some of the recent disinflation progress. Though inflation has cooled, any upward jolt in input costs reintroduces uncertainty around Q2 and Q3 metrics. The warning issued by Williams implies that policymakers remain vigilant and are not eager to declare inflation defeated, even with the recent soft readings. We’ve learned before that temporary disinflation doesn’t promise policy loosening.
It’s equally telling that equity markets celebrated the bond yield move positively. The bounce in broader indices, including the S&P 500 and NASDAQ, suggests traders interpreted inflation data as soft enough to support valuations but not yet disruptive enough to warrant policy reversals. Gains this strong—comparable to the kind last seen more than a year ago—often breed positioning imbalances in volatility markets. Gamma exposure in index options is likely to have adjusted dramatically, calling for attention to where strike concentrations lie. From what we’ve seen, any continuation will depend not just on macro data, but on whether volatility compresses further and keeps realised moves contained.
As we look at the calendar ahead, events in other major economies will likely matter more than usual. Trade balance numbers emerging from Asia and new guidance from central banks midweek will need to be examined in the context of rediscovered inflation risk, especially if international data suggest that price trends aren’t synchronised. Yield spreads may react quickly, particularly in the front end, and traders should monitor short-term rate differentials for sudden repricing.
What we’re watching—more than policy chatter—is positioning in short-maturity interest rate derivatives. If Fed funds futures start gently rising again from current levels, that should confirm that markets are not yet ready to price a full pivot. Until that happens, the radar should remain focused on second-tier inflation prints and wage metrics, which will either extend the dollar’s downside correction or signal a grinding pause.
In the short term, reaction functions rather than speeches will speak loudest. Market participants may well map their strategies from this set of inflation readings, but the tariff lens must also be applied. This cycle’s inflation is sticky where it matters most—services and rents—and headline relief won’t smooth over that stickiness when policy risk remains upwards.
