Dollar index hits lowest level in a year as US inflation remains subdued

What’s happened?

Asian stocks gained on Friday, following a positive trend on Wall Street after US producer prices unexpectedly dropped, raising hopes that the Federal Reserve may soon end its tightening cycle. In Singapore, the central bank maintained its monetary policy while its economy showed signs of slowing down. The S&P/ASX 200, Nikkei 225, Hang Seng, and Shanghai Composite all made gains. The dollar index also fell below 101 on Friday, marking the lowest level in a year, as subdued inflation in the US reinforced expectations of an end to the Fed's tightening cycle. The US Labor Department's data showed a month-on-month decline in producer prices in March, the biggest drop in almost three years, following the moderation of consumer prices. The Federal Open Market Committee (FOMC) minutes revealed a considerable reduction in expected rate hikes this year and the likelihood of the banking crisis tipping the economy into recession later this year. Market projections include a 25 basis point rate hike in May and a series of rate cuts from July through year-end. The dollar weakened against most currencies, with the euro and antipodean currencies experiencing the most significant selling activity.

What to watch?

Gold steadied around $2,040 an ounce on Friday, hovering at its strongest levels in over a year as softening US economic data bolstered expectations that the Federal Reserve is nearing the end of its tightening cycle. Data from the US Labor Department showed that US producer prices unexpectedly fell month-on-month in March by the most in nearly three years, coming a day after inflation data pointed to a moderation in consumer prices. The latest FOMC minutes also showed that officials considerably scaled back expectations of aggressive rate hikes this year and indicated that the recent banking crisis would likely tip the economy into recession later this year. Markets are currently priced for a 25 basis point rate hike from the Fed in May, while projecting a series of rate cuts from July through the end of the year. Gold is also in track to advance for the second consecutive week.

Investors are eagerly anticipating the release of key economic data today, including US retail sales and Prelim UoM Consumer Sentiment. These indicators are closely watched by market participants as they provide important insights into the health of the US economy and the confidence of consumers. As such, any significant deviation from expected levels could potentially trigger volatility in the financial markets.