Watching Cracks in the Ceasefire and Rising Inflation While Awaiting Some Key U.S. Economic Data – Currency Thoughts
Watching Cracks in the Ceasefire and Rising Inflation While Awaiting Some Key U.S. Economic Data
April 9, 2026
The U.S./Iranian ceasefire got off to a very shaky start. Amazingly, Israel’s bombardment of Lebanon was left out of the deal at least if the American narrative is to be believed. Iran is recounting a different story and frankly a more credible rendition of what was agreed. Not only did Israel’s assault of southern Lebanon continue, but such escalated sharply during the past 24 hours. Leaving this dimension of the wider war out of the truce talks seems analogous to omitting Poland and even Japan from a narrative explaining World War II. The current conflict is a Middle Eastern event, not a simple disagreement between Washington and Tehran. Peace can only be restored if the dynamic of the whole region is considered. Another major breakdown in the truce is that normal traffic through the Strait of Hormuz failed to resume. That was the major objective of the U.S. side. If the region wasn’t endowed with plentiful fossil fuel or if America was 110% committed to the development of other energy sources, the war would not have been started in the first place. At this stage, it’s hard to see the truce working unless Trump can persuade Netanyahu to suspend its Lebanon fight.
All things considered, it’s surprising that world financial markets haven’t reacted more sharply today in reversing yesterday’s rally. Shortly prior to this morning’s release of GDP, the personal spending price deflator, and weekly jobless insurance claims,
- The dollar had lost only 0.3% relative to sterling, 0.2% overnight on a weighted basis and bilaterally against the euro, Swiss franc, and Australian dollar and 0.1% versus the Canadian dollar. The dollar also was 0.2% softer against the yen.
- Equities had dropped 1.6% in South Korea, 1.1% in Germany and 1.2% in India but by no more than 0.7% in Japan, Hong Kong, Australia, Taiwan, Singapore, France, Italy, Spain, U.K., or in futures trading of anyone of the four major U.S. stock market measures.
- Ten-year sovereign debt yields had risen six basis points in Great Britain and Italy, five bsp in Spain and Australia, four bps in France, three bps in Germany, two bps in Japan but just a single basis point in the United States and Switzerland.
- West Texas Intermediate oil had rebounded 4.5% but, at $98.71, was well below the $115 level seen on Tuesday. Net changes in the prices of Bitcoin and gold were merely 0.1%.
The released U.S. data did not deviate substantially from expectations. Real GDP growth in the final quarter of 2025, according to the final estimate, rose just 0.5% at a seasonally adjusted annualized rate, revised down from earlier estimates of 0.7% and before that 1.4%. This left growth in all of 2025 at 2.1% and the rise in the total and core PCE price deflator in 4Q 2025 at 2.8% and 2.9%. Personal income in February dipped 0.1% versus expectations of a 0.3% rise. Personal spending went up by an as-expected 0.5% in February but only 0.1% after no change in January when adjusted for inflation. The February total and core PCE price deflators of 2.8% and 3.0% were aligned with expectations. New jobless insurance claims last week increased by 16k to 219k but the most recent tally of continuing claims was 2.1% fewer than in the previous week.
Data highlights from other countries this Thursday included German industrial production (-0.3% on month and unchanged on year) that under-performed expectations and a seasonally adjusted trade surplus of EUR 19.8 billion in February that exceeded expectations but was EUR 0.5 billion less than January’s surplus.
Spanish industrial production similarly edged lower for a third consecutive month in February, resulting in a 1.1% drop from a year earlier, which was the largest 12-month decline since February 2025.
South African industrial production underwhelmed expectations, sinking 2.2% on month and 2.8% on year in February.
Romanian GDP contracted 1.8% in the fourth quarter of 2025 and was just 0.2% higher than a year earlier.
Consumer confidence in Japan took a big hit from the Middle Eastern war, dropping from February’s 82-month high of 39.7 to a 10-month low of 33.3. Japan’s composite purchasing managers index fell from a 33-month high of 53.9 in February to a 7-month low of 50.3 last month.
Dutch consumer price inflation, which had imploded from 14.5% in September 2022 to -0.4% by October 2023, rose from a 23-month low in January to a 3-month high in March of 2.7%.
CPI inflation in Ireland jumped from 2.7% in each of the first two months of this year to a 26-month high in March of 3.6%. The energy component shot up 12.8% above its year-earlier level.
Egyptian CPI inflation accelerated to a 10-month high of 15.2% in March from 13.4% in February.
Lithuanian CPI inflation of 4.8% last month was the most in 31 months and up from 3.6% in February and 3.1% in January.
Norwegian producer prices, which were 9.4% lower than a year before in February, posted a 16.9% year-on-year rise last month.
The Middle Eastern war has impacted this year’s monetary policy dynamics around the world. FOMC minutes released yesterday left the impression that the likely path taken this year by federal funds target will be higher for longer than imagined before the recent spike in energy costs and that its next change could be upward or downward, depending on evolving events and price reactions.
The policy interest rate of the National Bank of Serbia was left at 5.75% today after the latest planned review. It’s been at level since a trio of quick 25-basis point cuts way back in June, July and September of 2024. It’s also less than a percentage point below the year-long peak at 6.5%. According to the statement explaining today’s action,
When making the decision, the Executive Board was mainly guided by actual and expected inflation movements, as well as risks from the international environment which could impact inflation trajectory. When it comes to monetary policy decisions of leading central banks, the Middle East conflict has added to uncertainty regarding the outlooks for US and European inflation and economic activity, and made it more difficult to estimate what the Fed and the ECB’s next move may be.
The Polish monetary policy interest rate had been sliced seven times between May 2025 and March 2026 by a total of two percentage points to 3.75%, but officials at the National Bank of Poland made no rate cut at this month’s meeting today, warning that “As a consequence of supply constraints related to the conflict in the Middle East, prices of fuels surged globally. The outlook for global activity and inflation is subject to significant uncertainty, related, in particular, to the geopolitical situation.”
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: National Bank of Poland, National Bank of Serbia, U.S. GDP, U.S. personal consumption deflator
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