Alberto Musalem, President of the Federal Reserve Bank of St. Louis, stated that the ongoing oil shock resulting from the Middle East war is likely contributing to elevated core inflation, which he expects to remain near 3% throughout the year [1]. Musalem noted that supply shocks are jeopardizing the Fed's inflation and employment objectives, and he considers the current interest rate range appropriate 'for some time' [1]. He also revised his GDP growth forecast for the year downward to between 1.5% and 2%, compared to his previous estimate of 2% to 2.5% before the conflict began [1]. Musalem highlighted that easing tariffs could help lower inflation and observed that housing inflation is trending in a favorable direction [1]. He does not yet see clear impacts from the war on consumer spending but warned that unemployment could rise slightly as economic growth slows [1].
On the currency front, the US Dollar Index (DXY) struggled to extend recent gains, trading near 98.10 in a tight range as mixed US economic data and conflicting signals from yields limited momentum [2]. While initial safe-haven demand supported the US Dollar amid Middle East tensions, this effect faded as US yields stabilized and investors hesitated to increase long USD positions without new catalysts [2]. The US Dollar was the strongest against the Japanese Yen, with a 0.16% gain, but lost ground against other major currencies such as the Euro and Australian Dollar [2].
In the broader forex market, EUR/USD traded in a neutral range near 1.1800, supported by stable Eurozone expectations but capped by the European Central Bank's cautious stance on inflation [2]. GBP/USD held steady around 1.3570, with the Pound finding support despite concerns about UK growth and persistent inflation [2]. USD/JPY traded above 159.00, with the Yen intermittently benefiting from safe-haven flows [2]. AUD/USD surged above 0.7170 ahead of Australia's March employment report, which is expected to show a 20,000 job increase and a steady 4.3% unemployment rate [2].
West Texas Intermediate (WTI) oil prices remained volatile, recovering nearly all intraday losses and trading near $91.20 per barrel as supply disruption concerns persisted due to the Middle East situation [2].
CONCLUSION
Fed's Musalem emphasized that the oil shock from Middle East tensions is sustaining core inflation and has led to a downward revision in US GDP growth forecasts. The US Dollar, while initially buoyed by safe-haven demand, has stalled as yields stabilized and investors await new catalysts. Market participants remain cautious, with ongoing geopolitical risks and central bank policy stances shaping currency and commodity movements.