Higher Costs Meet Slower Growth (13-17 April)

Economic markets are moving in a tighter loop where energy supply, inflation pressure, and policy expectations feed directly into one another.

Currency swings reflect shifting confidence in diplomacy and interest rates, commodities react quickly to disruptions in key shipping routes, and bond yields signal how long price pressure may stay in place.

Recent data shows growth losing some momentum, even as inflation proves difficult to bring down, creating a more demanding backdrop for the months ahead.

Currencies

Dollar Index: The US dollar index stayed below 99. Diplomatic contacts involving US, Iranian, Israeli, and Lebanese officials supported hopes for easing tensions, yet restricted activity in the Strait of Hormuz kept oil prices high. US inflation picked up in March, with headline CPI rising to 3.3% and core inflation to 2.6%, shaping expectations for the Federal Reserve’s next policy steps.
Euro: The euro climbed above $1.17, its highest level since late February, gaining nearly 1.5% over the week against the dollar. The advance reflected optimism around possible progress in Russia-Ukraine peace talks, while positioning remained cautious before revived US-Iran discussions. Higher oil prices increased inflation pressure, leading markets to price a firmer ECB stance, with several rate hikes expected by 2026.
British Pound: The British pound moved above $1.34, also marking its strongest level since late February and a weekly gain of nearly 1.5% against the dollar. However, rising energy costs strengthened expectations that the Bank of England will maintain a tighter policy direction, with at least one rate increase priced in by 2026.
Japanese Yen: The Japanese yen held near 159 per dollar, supported by the recent US-Iran ceasefire that eased oil prices and reduced stagflation risks. The yen remains about 2% weaker since the conflict began, reflecting concern over inflation linked to higher energy costs, with focus shifting to Bank of Japan Governor Kazuo Ueda’s signals before the April 28 policy decision.

Commodities

Gold Moves Higher Toward $4,780

Gold climbed to around $4,780 per ounce, marking a third weekly increase as a softer US dollar and renewed diplomatic engagement between Washington and Tehran supported demand. The metal rose roughly 2% over the week, helped by expectations for earlier US rate cuts and easing inflation pressure following a temporary pullback in oil prices. Still, fresh strikes in Lebanon and continued shipping disruptions in the Strait of Hormuz kept sentiment guarded. Firmer US inflation data and uneven physical demand across Asia also shaped the broader outlook.

Strait Disruption Tightens Brent Supply

Brent crude futures surged about 8% to near $103 per barrel, reversing last week’s losses after the United States imposed a blockade targeting vessels linked to Iranian ports. Weekend negotiations in Pakistan collapsed over nuclear and regional security demands, reinforcing supply concerns tied to the region’s key export corridor. The disruption has tightened availability and revived inflation pressure, even as Saudi Arabia increased exports through alternative pipelines and production fields.

Rate Cut Expectations Still Silver

Silver advanced to around $75.6 per ounce, also heading for a third straight weekly gain as currency weakness and shifting policy expectations supported demand. The metal climbed more than 4% over the week, reflecting a stronger conviction that US rate reductions could arrive sooner and run deeper, a backdrop that typically favors non-yielding assets. A temporary ceasefire helped cool energy prices, yet lingering regional tension continued to limit confidence. Firmer US CPI readings and evolving Federal Reserve expectations remained central to price direction.

Fixed Income

US 10 Year Treasury Note Yield: The US 10-year Treasury yield edged up to 4.31%, recovering from three-week lows as markets assessed developments in the Middle East alongside fresh economic data. Diplomatic engagement between US, Iranian, and Lebanese officials supported hopes for easing tensions, yet the conflict’s effect is already visible in inflation figures. March CPI rose 0.9% month-on-month and 3.3% year-on-year, while core inflation reached 2.6%. At the same time, softer consumer sentiment and rising inflation expectations reduced the likelihood of near-term Federal Reserve rate cuts.
UK 10 Year Bond Yield: The UK 10-year gilt yield closed a volatile week at 4.77%, largely unchanged but still close to multi-year highs as borrowing costs across Europe remained firm. Attention centered on potential US-Iran ceasefire discussions, while persistently high oil prices reinforced inflation pressure and supported expectations of a firmer Bank of England policy stance, with at least one rate increase priced in by 2026. Continued disruption around the Strait of Hormuz added to supply concerns, even as diplomatic signals from Washington and progress in Ukraine-Russia talks shaped the broader tone.
Japan 10 Year Government Bond Yield: Japan’s 10 Year Government bond yield climbed to around 2.4% on Friday, staying close to its highest level since 1998 as markets increasingly expect the Bank of Japan to raise interest rates this month to address inflation pressure. Focus now turns to guidance from Governor Kazuo Ueda before the April 28 policy meeting, following his earlier forward-guidance approach. Yields have risen since the start of the Middle East conflict due to higher energy costs, though oil prices eased after a temporary US-Iran ceasefire. Diplomatic meetings in Islamabad remain a key near-term driver.
Germany 10-Year Bond Yield: Germany’s 10-year Bund yield moved above 3% this week, rising roughly 2.5 basis points and drawing closer to the 3.13% peak recorded in late March, the highest level in 15 years. The increase reflected shifting geopolitical risks alongside improving sentiment after Ukraine signaled progress toward a possible agreement with Russia. High oil prices continued to feed inflation pressure, reinforcing expectations of a firmer ECB stance, with at least two rate increases now priced in by 2026. Persistent tension around key shipping routes and political disagreements added another layer of uncertainty.

Economic Data

United States Inflation Rate

US annual inflation rose to 3.3% in March 2026, the highest level since May 2024 and a sharp increase from 2.4% in the previous two months, matching expectations. The rise was largely driven by higher energy prices, particularly gasoline and fuel oil, linked to the conflict with Iran. Monthly CPI jumped 0.9%, the strongest increase since mid-2022. Core inflation edged up more moderately to 2.6%, while shelter costs held steady and food price growth eased slightly.

United States GDP Growth Rate

The US economy expanded at an annualized rate of 0.5% in Q4 2025, revised lower from earlier estimates mainly due to softer investment data. Consumer spending slowed more than expected as both goods and services demand cooled, while fixed investment posted modest gains supported by equipment and intellectual property despite a sharp drop in structures. Residential investment also declined more than first reported. Exports recorded their largest fall since mid-2023, and government spending contracted significantly during the shutdown period. Overall growth for 2025 was reported at 2.1%.

United States Personal Spending

US personal spending increased 0.5% month-over-month in February 2026, reaching $103.2 billion and matching expectations after a revised 0.3% gain in January. The advance reflected stronger purchases of goods, particularly motor vehicles, nondurable items, and apparel, alongside higher services spending led by healthcare, financial services, and transportation. When adjusted for inflation, real spending rose only 0.1% following no growth in the previous month, pointing to a more restrained pace in household demand.

China Inflation Rate

China’s inflation eased to 1.0% in March 2026 from 1.3% in February, falling short of expectations as food price growth slowed sharply due to lower vegetable, fruit, and pork prices. Non-food inflation remained broadly stable, with mixed trends across clothing, healthcare, and education, while transport costs rebounded and housing prices continued to decline. Core inflation slipped to 1.1%, and monthly CPI fell 0.7%, marking the first contraction since November and signaling softer domestic price pressure overall.

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