USD: Oil shock, inflation risks and Fed path – Commerzbank

Commerzbank’s Volkmar Baur argues that FX markets will increasingly shift focus from Gulf tensions to the impact of higher Oil prices on United States (US) inflation and the US Dollar (USD). He highlights a sharp March Consumer Price Index (CPI) boost from gasoline and warns that second‑round effects via trucking costs could lift consumer prices and shape Federal Reserve (Fed) policy under Kevin Warsh.

Oil-driven inflation and Dollar outlook

"Looking ahead, the fx markets will likely increasingly focus on the effects of the oil price shocks. And fittingly, important data is coming out today that could provide a first small glimpse: the US inflation figures for March."

"According to Bloomberg, the consensus expects a significant rise in the monthly rate to 0.9%, which would push the annual rate to 3.4% - its highest level in two years. The impact on the core rate, however, is understandably estimated to be significantly smaller. The consensus expects an increase of 0.3% here compared to the previous month."

"In the coming months, however, it will likely be more interesting to see how second-round effects play out. For even though there are hardly any diesel-powered cars in the US and the price of diesel is therefore irrelevant to consumer prices, trucks, on the other hand, run on diesel. And here, prices in the US actually rose by 32% last month."

"Most logistics companies have therefore already reacted and significantly raised their trucking rates. By the end of March, these rates were already more than 10% higher than at the end of February. And since all goods must eventually be transported from A to B, transportation costs will ultimately find their way into consumer prices as well."

"For the US Federal Reserve, however, this is likely to be a decisive factor in the coming months. And how its newly appointed chairman, Kevin Warsh, will handle this - despite his desire to lower interest rates - will then be decisive for the USD."

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