Slide in headline Euro-Zone inflation.

The headline Euro-Zone consumer inflation declined sharply to 6.9% for March from 8.5% the previous year and below consensus forecasts of 7.1%. The headline rate was cut by a decline in energy prices and there was also a very favourable base effect as energy prices surged last year.

The underlying inflation rate edged higher to 5.7% from 5.6% and in line with market expectations.

The US PCE prices index increased 0.3% for February with the year-on-year rate declining to 5.0% from 5.3% and slightly below expectations of 5.1%.

Core prices also increased 0.3% on the month with the annual rate marginally lower at 4.6% from 4.7% and slightly below expectations of 4.7%.

New York Fed President Williams reiterated that data will drive monetary policy, although he added that bank stresses will lower consumer spending.

Fed Governor Collins stated that maintaining a tight monetary policy is key to lowering inflation and added that a weaker jobs report in March is unlikely to change the policy outlook. Fed Funds futures indicated just below a 50% chance of a further rate hike at the May meeting.

Over the weekend, OPEC+ announced an unexpected decision to cut oil output by 1.15mn bpd.

The move triggered a surge in oil prices at the Monday open with WTI spiking to 2-month highs near $81.50 p/b before a correction.

The jump in oil prices increased speculation that the Federal Reserve would have to be more aggressive in raising interest rates.

The dollar also posted gains while the yen and Euro came under pressure.

Overall risk conditions remained firm on Friday with strong gains in Wall Street equities for the day.

The mood was less positive on Monday following the jump in oil prices, although equities were relatively resilient.

The Reserve bank of Australian will announce its latest policy decision on Tuesday with consensus forecasts for a further increase of 25 basis points to 3.85%.

The decision and forward guidance will be crucial for the Australian dollar reaction.

Euro and yen hit by higher oil prices. The Euro was unable to make further headway on Friday with EUR/USD selling above 1.0900. The US Chicago PMI index edged higher but remained in contraction territory. The dollar was still mixed but secured a recovery against the Euro and Sterling. EUR/USD retreated to below 1.0850 later in the day. Higher oil prices triggered further EUR/USD losses to below 1.0800 on Monday.

The yen still demonstrated some resilience during Friday. USD/JPY peaked above 133.50 before a retreat to 132.75. The jump in oil prices undermined the yen and USD/JPY strengthened to 133.50 on Monday.

Sterling was supported by firm risk appetite on Friday but failed to make any headway. GBP/USD was unable to hold above 1.2400 and retreated to 1.2335. There was a further GBP/USD retreat to 1.2280 on Monday.

The Australian dollar was unable to hod gains and traded just below the 0.6700 level. There was a further net retreat to 0.6670 on Monday. The Canadian dollar held a firm tone on Friday and USD/CAD traded just below the 1.3500 level. The jump in oil prices supported the Canadian dollar on Monday with USD/CAD around 1.3520.

Economic Calendar