US
Markets are trading on a cautious tone ahead of the US-Iran ceasefire talks planned this weekend in Islamabad. Brent crude oil prices are up 8% from Wednesday’s low, US stocks are churning, European stocks are up, global bond yields ticked higher but remain below their end-March highs, and the dollar’s decline stabilized.
For financial markets, the key issue is whether peak shipping security fear is now behind us. President Donald Trump’s openness to Iran’s 10-point proposal, including recognition of its sovereignty over the crucial Strait of Hormuz, as “a workable basis on which to negotiate” suggests the worst of the shipping risk panic may be in the rear-view mirror.
If so, risk appetite can improve further and anchor the DXY (USD index) within a 96.00-100.00 range. Structurally, we maintain our long-held bearish USD view because of fading confidence in US trade and security policy, worsening US fiscal credibility, and the ongoing politicization of the Fed.
March CPI will be the first inflation print since the war began (1:30PM London, 8:30am New York). Headline inflation is poised to quicken sharply due to the surge in gasoline prices. Headline CPI is seen rising to a one-year high at 3.4% y/y vs. 2.4% in February and core CPI is expected to increase to a five-month high at 2.7% y/y vs. 2.5% in February.
April University of Michigan consumer sentiment survey will offer a read on how well long-term inflation expectations are anchored (3:00pm London, 10:00am New York). Consensus sees 5 to 10-year inflation expectations rise by 0.2pts to a five-month high at 3.4%.
As long as US underlying inflation and inflation expectations remain contained, the Fed will have room to resume easing to support the labor market and near stagnant consumer spending activity. Real personal spending growth undershot consensus at 0.1% m/m in February (consensus: +0.2%) vs. 0.0% in January (revised down from +0.1%).
Fed funds futures imply steady rates throughout 2026. We expect the Fed to deliver one 25bps cut by year-end to a target range of 3.25%-3.50%, in line with the FOMC’s projection.
CANADA
USD/CAD is holding above support at its 200-day moving average (1.3818). March labor force survey is due today (1:30pm London, 8:30am New York). The economy is expected to add +15k jobs after losing -83.9k in February. Encouragingly, Canada’s favorable inflation backdrop gives the Bank of Canada (BOC) a small cushion to look through the oil-price shock and refrain from raising rates in the face of a worsening labor market.
The swaps curve has trimmed BOC rate hike bets over the next twelve months from as much as 75bps on March 26 to around 50bps currently. Provided the worst of the energy shock is behind us, BOC rate hike bets should ease further because Canada has a negative output gap (between -1.5% and -0.5% in Q4 2025).
NORWAY
NOK is firm across the board. Norway March inflation underpins the Norges Bank hawkish shift. Headline CPI rose 0.9pts to 3.6% y/y (consensus: 3.6%, Norges Bank: 3.5%) and underlying CPI printed at 3.0% y/y for a second straight month (consensus: 3.1%, Norges Bank: 3.0%).
At its March 25 meeting, the Norges Bank highlighted “the inflation outlook implies that it will likely be appropriate to raise the policy rate at one of the forthcoming monetary policy meetings.” The bank’s new policy rate path has been revised up from a -25bps cut to between +25bp and +50bps of hikes by the end of this year. The swaps curve price-in 38bps of hikes in the next twelve months.
PERU
As was widely expected, Peru’s central bank (BCRP) kept the policy rate unchanged at 4.25% for a seventh consecutive meeting. The statement stopped short of signaling any rush to tighten despite inflation overshooting the bank’s 1 to 3% target range. In fact, BCRP noted “Both headline and core inflation are expected to return to the target range by the end of the year and to stabilize around 2 percent in 2027, as the effects of supply shocks gradually dissipate.”
KOREA
KRW is underperforming all major currencies in line with the modest rebound in crude oil prices. As was widely expected, Bank of Korea (BOK) left the policy rate unchanged at 2.50% for a seventh consecutive meeting. The decision was unanimous and the policy bias remained somewhat neutral.
In February, the BOK’s median rate expectation was for the policy rate to stay at 2.50% over the next six months. But the BOK stressed today that the “uncertainty surrounding the future path of inflation remains very high.” The next policy forecast update will be offered at the May meeting, under the helm of the new governor. Current Governor Rhee Chang Yong’s four-year term ends later this month.
