US inflation data for April came in higher than expected, with the Consumer Price Index (CPI) rising 0.6% month-on-month and 3.8% year-on-year, the highest annual rate since May 2023, according to the US Bureau of Labor Statistics [1][3][4]. Core CPI, which excludes food and energy, increased by 0.4% monthly and 2.8% annually, also marking the highest since January 2025 and remaining above the Federal Reserve's 2% target [1][3][4]. This hotter-than-expected inflation report has reinforced expectations that the Federal Reserve will keep interest rates elevated, with traders now pricing in about a 30% chance of a Fed rate hike by the end of the year and a 4.5% probability of a 50-basis-point hike, according to CME Group's FedWatch tracker [1][3][4].
The market reaction was swift: the S&P 500 closed 0.16% lower, the Nasdaq Composite dropped 0.71%, and the Dow Jones Industrial Average edged up 0.11% on Tuesday, as Wall Street's record-breaking rally came to a halt [4]. In the currency markets, the US Dollar strengthened against major peers, with USD/CAD trading flat near 1.3695, EUR/USD weakening below 1.1750, and AUD/USD down 0.06% at 0.7235 [1][2][3]. The Canadian Dollar was supported by rising crude oil prices amid Middle East tensions, while the Euro faced headwinds from the strong US Dollar but could find support from hawkish European Central Bank (ECB) comments, with markets pricing in a 92% chance of a 25 basis point ECB hike in June [1][3].
Geopolitical developments also played a role, as ongoing US-Iran tensions and the closure of the Strait of Hormuz contributed to higher oil prices, benefiting the commodity-linked Canadian Dollar [1]. Meanwhile, attention is turning to the upcoming summit between US President Donald Trump and Chinese President Xi Jinping in Beijing. Trump stated that trade will be the main focus of the summit, downplaying the Iran issue, and also mentioned that arms sales to Taiwan and the fate of Hong Kong media tycoon Jimmy Lai would be on the agenda [1][2][4].
In Washington, a federal appeals court allowed the Trump administration's 10% global tariffs to remain in place for another 10 days as legal proceedings continue [4]. In corporate news, eBay rejected GameStop's $56 billion takeover proposal, calling it 'neither credible nor attractive,' despite GameStop's CEO Ryan Cohen's bid valued at $125 per share [4].
CONCLUSION
Hotter-than-expected US inflation data has shifted market expectations toward a potential Fed rate hike, halting Wall Street's rally and strengthening the US Dollar against major currencies. Investors are now closely watching the Trump-Xi summit for further market-moving developments, while geopolitical tensions and trade policy remain in focus.