US Dollar Surges Amid Inflation Concerns on Soaring Oil Prices – 11 April

Surprise OPEC+ Cut Prompts Dollar Surge and Reassessment of Fed Plans.

• The US dollar saw a strong surge in early European trading on Monday due to rising concerns over inflation as a result of surging oil prices.
• This has led to speculation that the US Federal Reserve may lift interest rates at its upcoming meeting. The Dollar Index, which measures the greenback against six other currencies, rose 0.4% to 102.560.
• Breaking past 103 for the first time in a week. In March, the index had fallen 1.8% due to concerns over banking sector turmoil affecting economic activity, leading to the Fed pausing its monetary tightening cycle earlier than expected.
• However, the decision by OPEC+ on Sunday to cut production by just over 1 million barrels per day has caused oil prices to soar, changing the narrative.
• This has led Hidehiro Joke, a strategist at Mizuho Securities, to suggest that inflation will remain the biggest driver of the Fed’s monetary policy and that the market is less likely to assume an early shift to lower rates or a faster pace of rate cuts.
• manufacturing PMI numbers for the Eurozone and the UK were due for release, which was expected to show that the important sector remained in contraction in March.
• The EUR/USD traded 0.2% lower at 1.0812, while the GBP/USD fell 0.2% to 1.2306, as the dollar surged. Meanwhile, the USD/JPY rose 0.6% to 133.62, following Japan’s manufacturing PMI rose to 49.2 in March from February’s 47.7, marking the slowest contraction since November 2022.
• However, the yen was weighed down by the rise in US bond yields following the OPEC+ decision, with the two-year US Treasury yield up 4.8 basis points at 4.110%. The USD/CNY also rose 0.3% to 6.8884, as data showed that growth in China’s manufacturing sector slowed in March, with the Caixin PMI coming in at 50, retreating from an eight-month high of 51.6 hit in February.
• This was in line with last week’s government data, which showed that growth in China’s manufacturing sector was slowing after an initial post-COVID bounce.