USD: Focus on Inflation and Fed tensions risk – Commerzbank

Commerzbank’s Antje Praefcke argues that the Iran ceasefire is fragile and warns against expecting Oil prices to quickly return to pre-war levels. She notes that US inflation data, including CPI and the PCE index, are likely to reflect higher energy costs over time. Rising prices could revive political pressure on the Federal Reserve, with renewed verbal attacks from President Trump potentially weighing on the Dollar.

Geopolitics, inflation and Fed tensions

"In my view, the major issue of “inflation, inflation expectations and central bank responses” could come back into sharper focus, regardless of the fact that tensions on the oil markets are easing."

"Even if the US price figures for March are unlikely to reflect the full extent of the situation, they do provide an initial indication of how strongly the Middle East conflict could be felt in US prices."

"The March inflation rate, due to be published tomorrow, is likely to reflect the rise in petrol prices – a jump to well over 3% year-on-year is expected here."

"The effects are likely to be less pronounced in the broader PCE index (personal consumption expenditure on goods and services), which is due to be announced today. However, as in recent months, this index has already been well above the Fed’s 2% target (2.8%)."

"It is likely only a matter of time before the PCE index also rises; after all, oil prices currently remain 50% above pre-crisis levels, and the impact on prices of goods and services is only slowly becoming apparent."

"With this week’s inflation data, it may still be too early for it. Nevertheless, it is quite possible that the theme of “calls for interest rate cuts and verbal attacks on the Fed” could return to the US President’s agenda."

"If Trump turns his attention back to this front and the conflict with the Fed flares up again, the dollar could suffer accordingly."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)