Strong US Jobs & Rising CPI Shift Focus to the Fed.
Summary
US nonfarm payrolls for March came in at 178,000, well ahead of consensus expectations of around 59,000, reinforcing the case for the Federal Reserve to keep rates on hold and pushing back any near-term easing expectations
The Fed's preferred inflation measure, core PCE, is released Thursday for February, with markets watching closely for signs that energy-driven price pressures are beginning to feed through
FOMC minutes from the March meeting are due Wednesday and will be scrutinised for any shift in how policymakers are weighing the inflation risk from the Middle East conflict against signs of labour market softness earlier in the quarter
Friday's jobs report delivered a significant surprise. The US economy added 178,000 jobs in March, more than double the consensus forecast, with the unemployment rate unchanged at 4.3%. February's figure was revised down to a loss of 133,000, deepening the picture of a labour market that lost ground sharply before recovering. Health care accounted for the majority of March's gains, with physician office employment rebounding following the end of a strike. Federal government employment continued to decline, falling by a further 18,000 in the month.
The immediate market reaction reinforced the dollar and weighed on both sterling and the euro. The strong headline number effectively closed the door on any near-term Fed rate cut, with traders trimming dovish bets and Treasury yields moving higher in response. For GBP/USD, which had already posted four consecutive weeks of declines through March, the payrolls beat added further downward pressure heading into the new quarter.
The broader backdrop has not fundamentally changed. Oil settled above $100 per barrel for the first time since the conflict began, with the Middle East situation remaining unresolved and the Strait of Hormuz still a source of significant supply uncertainty. That energy price backdrop is keeping inflationary pressure elevated across all three major economies and limiting the room central banks have to act, regardless of what the underlying growth data is doing.
This week the focus moves to inflation directly. Thursday's February core PCE print is the Fed's primary policy gauge, and with the January reading already at 3.1% annually, the highest in two years, another elevated reading would cement the view that rate hikes are a more realistic prospect than cuts. The March CPI data, due Friday, will be the first inflation print to fully reflect the oil price surge that followed the escalation of the conflict. A hot reading there could prompt a significant repricing of Fed expectations heading into May.
The FOMC minutes on Wednesday will add context. Markets will be looking for any indication of how divided the committee is on the question of whether energy-driven inflation is transitory or becoming more entrenched, as that distinction will shape expectations for the rest of the year.
Events to Watch This Week
Wednesday 8 April: FOMC Minutes (March meeting)
Thursday 9 April: US Core PCE Price Index (February) and US GDP Final Estimate (Q4 2025)
Friday 10 April: US CPI (March)
With US inflation data dominating the calendar and the Middle East conflict maintaining upward pressure on energy prices, conditions remain highly sensitive to data surprises. A run of strong inflation prints this week could materially shift the rate outlook and drive further volatility across major currency pairs. Businesses with upcoming international transfers should not leave their exposure unmanaged heading into a week where the numbers could move quickly. Contact the Orbis dealing team to discuss your position.
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