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Higher gasoline prices in March in Canada —up 21% from February—are expected to push year-over-year growth in the headline Consumer Price Index up to 2.5% from 1.8% in February, while inflation excluding food and energy ticks slightly higher to 2.2%.

Annual energy inflation will likely rise above 0 for the first time since spring last year when the cancellation of the federal consumer carbon tax sent prices lower in April. In March, gasoline prices were up 6.8% from a year ago on average, but would have been up 23% without the impact of that tax change.

Impact from the removal of the carbon tax will fall out of the yearly comparison in April. Gasoline prices have risen further, and to-date are tracking more than 30% above a year ago. The temporary suspension of federal fuel excise tax (ten cents per litre) coming into effect on April 20 should blunt some of the impact. Still, we estimate rising energy CPI will drive headline inflation above 3% in April.

Food CPI has been biased higher by unfavourable annual comparisons in the prior months due to the federal HST/GST holiday last year and is set to ease in March, as the tax holiday in mid-February 2025.

The focus in the coming months will increasingly shift to the extent surging energy prices spread into broader inflation pressures, best gauged by the Bank of Canada’s core inflation measures that strip out more volatile components as well as effects from indirect taxes.

These core inflation measures showed significant signs of easing ahead of the Middle East conflict. CPI trim and median averaged 1% on an annualized basis from December to February.

Business survey to flag improving demand ahead of high oil prices

Easing (underlying) inflation pressures are consistent with a weak, albeit improving domestic demand flagged by businesses in the Q4 BoC Business Outlook Survey in 2025.

The Q1 update on Monday should tell a similar story, echoing other business confidence measures (eg. CFIB’s Business Barometer) that have mostly improved into early 2026 ahead of the recent oil price surge. Indeed, the survey period for BOS fell in February but likely didn’t capture much of the change in sentiment after the Middle East conflict broke out near the end of that month.

Recent softer core inflation readings should give the BoC more flexibility to look through the initial increase in energy prices from the conflict, but not if pressure broadens and persists. Risk of high oil prices seeping into core inflation, raising inflation expectations will grow the longer prices stay elevated, but are not what we currently expect in our latest base case projections.

For now, we continue to follow market pricing of oil that expects a gradual moderation in prices over the rest of this year. We see little meaningful passthrough to core CPI, and expect the BoC to hold the overnight rate steady at 2.25% for 2026.

In line with Statistics Canada’s preliminary estimate, we expect retail sales expanded 0.9% in February to build on a 1.1% increase in January. Our consumer spending tracker continues to flag resilience in core retail purchases in early 2026 that stretched into March despite sharply higher fuel prices.

In the U.S., the focus next week will be on retail sales for March, where we expect a 1.4% in nominal sales mostly due to higher gasoline prices—regular gasoline prices spiked 26% in March, and stronger light motor vehicle sales. Excluding both motor vehicles and gas, we expect retail spending was more subdued (+0.2% m/m) as discretionary goods spending softens, after sizeable pre-tariff front-running last year.

• Hope of US-Iran deal boosts sentiment but oil prices stay elevated.
• March CPI due in Canada, Japan, New Zealand and UK.
• Flash April PMIs also on tap ahead of central bank decisions.
• Kevin Warsh’s Senate hearing to likely overshadow US data.

Geopolitics to remain in drivers’ seat

Hopes are running high that US and Iranian negotiators will be able to hash out a deal over the coming days to end to the seven-week war that has wreaked havoc on energy supplies from the Persian Gulf. There appears to be a decent chance that a second round of direct talks between the two sides could take place as early as this weekend, following the failed first round a week ago.

Crucially, the fragile ceasefire agreed 10 days ago is due to expire on Tuesday, so at the very least, investors will be hoping for an extension. Reports suggest the US and Iran are close to agreeing to a two-week extension to allow more time for negotiations. Though, President Trump has indicated he would prefer to reach a deal without the need for an extension.

Trump believes the war is “very close to being over” but has nevertheless decided to send additional troops to the Middle East, likely to pile more pressure on Iran to accept a deal. Another positive development is that Israel and Lebanon have also agreed a ceasefire to stop the fighting between Iran-backed Hezbollah in south Lebanon and Israeli forces.

However, the slide in oil prices has come to a pause amid doubts about whether peace can be achieved in the region so quickly and worries about what Trump’s response would be if fresh negotiations were to fail again. There’s been little relief on the supply front after US warships entered the Strait of Hormuz to blockade ships headed to and from Iranian ports, although other vessels are able to pass through safely.

But Trump appears to be open to possible concessions to China, potentially allowing some Chinese tankers to use Iranian ports – something likely to be discussed when he meets President Xi in mid-May.

Any setback in the push for peace in the next few days could easily push oil prices back above $100. However, equities are at greater risk of a correction, as Wall Street has notched up new record highs even before there’s been an agreement on how to bring a permanent end to the Middle East conflict.

Warsh to face Senate test

Barring any unwelcome escalation with Iran, the main focus in the United States will be Kevin Warsh’s confirmation hearing in the Senate. The long overdue hearing before the Banking Committee, which had been put on hold due to ‘delays with paperwork’, finally has been set for Tuesday, April 21.

But there’s a far bigger obstacle than paperwork that could stand in the way of Trump’s nomination finally being confirmed as the next head of the Federal Reserve, replacing Jerome Powell. All Republican votes are needed in the Committee for Warsh’s nomination to be approved. But Republican Senator Thom Tillis continues to threaten to block Warsh’s bid to become Fed chair unless the Department of Justice drops its investigations into Powell and the White House abandons its legal case to fire him.

But with Trump unlikely to agree to such moves, the nomination process could hit a stalemate, adding fresh uncertainty to the markets, as there’s just one month left before Powell’s term as chair expires.

On the data front, the coming week will be rather quiet, with only retail sales and the S&P Global PMIs standing out on the economic agenda, while Fed speakers will be completely absent as the blackout period ahead of the April 29 policy decision starts at midnight on Friday. The data may therefore not attract much attention unless they disappoint by a wide margin, particularly if Tuesday’s retail sales numbers suggest that consumers held back in March when the US began its military strikes on Iran.

Pound braces for stagflationary data

With the US dollar positioned to extend its retreat from post-war highs to a third week, the pound will have an opportunity to shine as it braces for a barrage of UK data. Employment numbers are out first on Tuesday, followed by the CPI report on Wednesday, the flash PMIs on Thursday, and retail sales on Friday.

The UK labour market has posted modest jobs growth since October, but this has been insufficient to bring the unemployment rate lower, which has risen to 5.2%. Any further increase in the jobless rate in the three months to February would dissuade Bank of England policymakers from hiking interest rates too soon.

Yet hawkish MPC members will probably need more convincing to stay on hold if the March CPI figures ring alarm bells about resurgent inflation. UK inflation finally started to cool this year, falling to 3.0% y/y, but with fuel prices jumping on the back of the energy crisis, headline CPI is almost certain to have reversed course in March when the Iran conflict unfolded.

The flash PMI estimates could add to the gloom if there’s further deterioration in April, raising the prospect of stagflation. On a more positive note, it seems that the UK economy got off to a much stronger start in the first two months of 2026 than anticipated and so any upside surprises in the PMIs would give the Bank of England less reason to be cautious, especially if combined with hotter-than-expected CPI data.

Having recovered back above $1.35 this week, the pound could stretch its gains beyond $1.37 from an upbeat set of releases.

Eurozone PMIs eyed as ECB ponders rate hike

The April PMIs will grab the limelight in the euro area too, where stagflationary risks are also rising. However, whilst the European Central Bank was quick to adopt a hawkish stance immediately after oil prices skyrocketed to just under $120, policymakers have since taken a step back, indicating they are in ‘no rush’ for a pre-emptive move, with the Bank of England using similar language.

After dipping in March, the services PMI is forecast to have declined again in April, dropping below 50 amid the strain on consumers and businesses from the spike in energy prices.

The euro could come under pressure from softer-than-expected PMI numbers on Thursday, as the ECB would be less inclined to act prematurely if the economy is in trouble.

Euro traders will also keep an eye on Germany business surveys, with the ZEW economic sentiment index out on Tuesday and the Ifo business climate gauge due on Friday.

Loonie unable to reap reward of Oil jump

Japan, Canada and New Zealand will also be receiving CPI updates next week. The Bank of Canada and Bank of Japan both meet in the last week of April, along with the Fed, ECB and BoE, hence, the inflation releases will be closely watched.

Canada’s key inflation measures moderated in February, putting the BoC in a more comfortable position before the expected pickup in CPI. Moreover, like the US, Canada is less energy dependent than Europe and Asia so the impact of the oil price surge will be less prominent.

Nonetheless, a stronger-than-expected CPI report on Monday could boost the odds of a BoC rate hike, which at the moment, is not fully priced in until October. This could lend some support to the Canadian dollar, which has been lagging the other commodity-linked dollars lately, despite Canada being a major oil exporter.

Can Japanese CPI bolster the Yen?

The yen has also been underperforming, barely benefiting from the dollar’s softness, even though the BoJ’s April decision is the most ‘live’ out of all the central bank meetings that week.

As per usual, the Bank of Japan has been giving mixed signals about the likelihood of a rate increase in April. The Iran war may have turned policymakers more cautious in the short term amid concerns about its effects on the economy, but a hike later in the year has become more inevitable.

Friday’s CPI figures for March will probably not add much clarity for investors as to the BoJ’s thinking, nor will Thursday’s flash PMIs, leaving the yen exposed. Meanwhile, despite its broader pullback, the US dollar has stayed supported above the 158-yen level and stands ready to test the 160 handle, considered to be the danger zone for intervention.

Kiwi awaits Q1 CPI amid RBNZ doubts

Elsewhere, the New Zealand dollar hasn’t been able to keep up with its aussie counterpart in April, amid the Reserve Bank of New Zealand’s somewhat questionable hawkish tilt. The RBNZ echoed its global peers when it signalled that any decision to hike interest rates will depend on seeing evidence of second-round inflationary effects when it met earlier this month.

A 25-bps increase is almost fully priced in for the July meeting, but the odds for action much sooner in May could rise if Tuesday’s quarterly CPI readings come in above expectations.

Another week with volatility induced by the Iran war seems to be ending with oil prices lower, equity prices higher and reduced expectations of interest rate hikes. Reports of progress towards a degree of peace and a potential reopening for traffic through the Strait of Hormuz is largely behind the relative optimism. A key step was the 10-day ceasefire agreed on Thursday between Israel and Lebanon, as an end to the fight there is a key Iranian demand. However, all agreements so far are temporary and appear fragile. For example, Iran and the US seem to have very different views on what will happen with Iranian nuclear resources and with shipping conditions through the Strait of Hormuz, and Hezbollah does not seem convinced about the ceasefire in Lebanon. Hence, there is a clear risk that sentiment could worsen significantly again in coming weeks.

As oil prices have declined, so have expectations of higher inflation and interest rates. We have tweaked our expectation for the ECB, so we now expect a 25bp rate cut in June and another one in July, rather than in April and June. This is based both on the decline in the oil price and on what we see as a slight shift in the signals from the ECB governing board members. In particular, news reports this week said that the board has more or less ruled out an April rate hike.

The short-term interest rate outlook is very dependent on the preferences and analysis of the policy decision makers, as the decision on whether to respond to the oil supply shock is not a clear-cut one. We expect that there will be a response because of the fear that inflation expectations will become engrained, with the 2022 inflation still very much being top of mind. However, there is also a good case to be made that the central bank should not move, as higher energy prices will dampen the economy and that higher interest rates will make that problem worse. That is also why we expect that if rates are hiked, they will be cut again during 2027.

March data has in general shown no or only a modest response to the Iran war in economic activity and non-energy prices. This week we got data for China, where Q1 GDP growth surprised to the upside at 5.0% y/y and house prices declined at a slower rate than previously. However, retail sales are growing at only 1.7% y/y, so the weakness in domestic demand remains.

Next week, we will start to get data for April, most importantly the flash PMIs for most major economies on Thursday. Especially in Europe, we expect to see a sharp decline in manufacturing due to higher energy prices, and the price components could give some important clues about whether energy costs are filtering through to other prices. Note that PMIs can be more difficult to interpret in times of high volatility though. For example, longer delivery times increase the headline index, so also keep an eye on the output subcomponent.

In general, even if energy prices continue to decline over the coming months, we still expect to see a negative effect on economic growth for 2026 in most major economies.

Full report in PDF. 

Crude oil prices were sharply down on Friday on announcement from Iranian government that the Strait of Hormuz was open for all commercial vessels.

Brent crude price fell around 10% immediately after the announcement in early US session, hitting the lowest in five weeks, in the biggest daily drop since March 23.

Fresh drop in oil prices further weakened near-term structure, following surge through ascending and thickening daily cloud, accompanied with formation of daily Tenkan/Kijun-sen bear-cross and strengthening negative momentum.

Bears also broke psychological $90 level and dented important Fibo support at $89.09 (50% retracement of $58.70/$119.47 rally) with weekly close below these levels to confirm bearish signal.

The latest news further boosted hopes for potential end of the war that put fire in entire region of the Middle East and sent shockwaves through the world.

Brent crude contract is on track for the second consecutive massive weekly loss that also to improved sentiment.

Immediate target lays at $86.54 (55DMA), followed by $81.91 (Fibo 61.8%) and $80.00 (psychological).

Broken cloud base ($89.61) and $90 (psychological) revert to resistances.

Res: 89.09; 90.00; 93.32; 94.30
Sup: 86.54; 83.16; 81.91; 80.00

The Euro jumped to two-month high on Friday, as bulls regained traction after eight-day rally paused for narrow consolidation in past two sessions.

Further drop of the dollar continued to fuel risk appetite and provided fresh support to the single currency, which recovered all losses caused by the war in the Middle East in past almost two months.

Fresh strength cracked important Fibo resistance at 1.1826 (61.8% of 1.2082/1.1410 descend) and look for confirmation of bullish signal on weekly close above this level.

The pair is on track for the third consecutive weekly gain, with strong acceleration higher, seen in past two weeks.

Daily studies remain in firm bullish configuration, with the structure being boosted by break above thickening daily Ichimoku cloud that contributes to bullish near-term outlook.

However, strongly overbought Stochastic and north-heading RSI approaching the boundary of overbought territory, send initial signal that bulls may start to face headwinds.

In the current circumstances, consolidation or limited pullback (ideally to find footstep above 1.1750 zone) should provide better levels to re-enter bullish market for 1.1900+ extension.

Keep an eye on developments on the ground over the weekend that would have an impact on Monday’s opening.

Res: 1.1875; 1.1900; 1.1924; 1.2000
Sup: 1.1826; 1.1770; 1.1746; 1.1700

Markets

So much for the initial cautious trading session going into a weekend that centers around a second round of US-Iranian talks. Axios during European afternoon trading cited sources in reporting that both countries are negotiating a cash-for-uranium deal, releasing $20bn in frozen Iranian funds in return for giving up its stockpile of enriched uranium. Iran’s nuclear program has been one of the thorny issues in the ongoing talks and the Axios report suggests the warring parties are at least trying to iron out their differences rather than digging in. A second critical topic is, of course, the Strait of Hormuz. Shortly after the Axios report, Iran’s foreign minister Araghchi declared the passage “completely open” for all commercial vessels with the important nuances that it is “on the coordinated route as already announced by Ports and Maritime Organisation of the Islamic Rep. of Iran” – which at some point might bring up the under international maritime law illegal Tehran tollbooth matter – and “for the remaining period of ceasefire”. A workaround for the former could be found in the 1936 Montreux Convention that deals with the Turkish straits and there have been rumours of backchannel diplomacy massaging parties to add another two weeks to the truce. Arab and European leaders yesterday told Bloomberg that a deal could take up to six months though, offering markets a reality check. But optimism is now back in full swing.

Brent oil falls almost 10% towards and even below the $90 barrier. Dutch natural gas (TTF future) loses 8% to trade back at the (higher) €38/MWh opening level following the first US/Israeli strikes that landed on Iranian soil. The EuroStoxx50 is rallying 2%+, reclaiming the 6k mark for the first time since the conflict erupted. US indices open more than a percent higher. European swap yields tumble 5 (30-yr) to 10 bps (2-yr). ECB tightening bets drop sharply. April is all but priced out (7%) and there are no longer two full rate hikes priced in for the year (43 bps compared to 55 bps just prior to the Axios-Araghchi combo). The 10-yr swap tries to hold on the 3% barrier. US Treasury yields ease 6.8-8.5 bps across the curve, the belly outperforming the wings. Gold jumps to a post-war high of $4880, as does silver at $81.2. The US dollar’s search for a near-term bottom (amid stabilizing oil prices) is in vain. The greenback takes a one-two punch, lifting EUR/USD to the highest level since mid-February around 1.185. The trade-weighted DXY loses the 98 barrier (97.64) with room, technically, for a further correction to 97 and 96.

News & Views

The International Air Transport Association’s assessment of potential jet fuel shortages is sobering. They estimate to start seeing some cancellations in Europe by the end of May for lack of jet fuel. This is already happening in parts of Asia. “Along with doing everything possible to secure alternative supply lines, it’s important that authorities have well-communicated and well-coordinated plans in place in case rationing becomes necessary, including for slot relief,” said Willie Walsh, IATA's Director General. EC spokesperson Itkonen also today said that the EU will be preparing to launch possible coordinated action as regards jet fuels. So far, the market is managing the tightness without shortage but issues may arise in the near future.

Czech National Bank board member Kubicek believes that a rate hike is currently more likely to be the central bank’s next move, but it’s not necessary to expect it right away. Kubicek was already contemplating a rate hike ahead of the Iran war because of the massive growth in loan and mortgages. Now he takes a tightening of financial conditions and downside economic risks into stride and balances it against the risks of second round inflation effects. He doesn’t think that the current 3.5% policy rate is too restrictive. Strong growth, increasing real wages and sticky core inflation (2.9% Y/Y) all warrant such stance.

Brent crude has broken below the $90 mark, confirming a decisive shift in market sentiment as geopolitical risks ease. The move follows a sharp selloff triggered by news that the Strait of Hormuz has been declared fully open for commercial shipping during the ceasefire period. The development removes one of the most critical supply risks and accelerates the unwind of the war premium that had supported oil prices in recent weeks.

The catalyst came after Iranian Foreign Minister Abbas Araghchi announced that passage through Hormuz is “completely open,” aligning with broader de-escalation efforts in the region. The response from Donald Trump further reinforced the shift, with the US leader signaling that negotiations are close to completion and suggesting that “most of the points are already negotiated.” Markets have interpreted this as a strong indication that a deal—at least in principle—is within reach.

Technically, the rejection at the 4H EMA (now at 100.72) was clearly a near term bearish sign. The focus now is on whether Brent crude's fall would extend through the near term falling channel floor, and close the week below 55 D EMA (now at around 90.85).

If so, that would very well set up further fall towards next key cluster support level at 81.41 (61.8% retracement of 58.88 to 119.70 at 82.11) early next week. In any case, further decline will now remain in favor as long as 95.94 support turned resistance holds.

Daily Pivots: (S1) 158.48; (P) 158.90; (R1) 159.56; More...

USD/JPY's sideway consolidation from 160.45 continues and intraday bias stays neutral. Outlook will stay bullish as long as 157.49 cluster support (38.2% retracement of 152.25 to 160.45 at 157.31) holds. On the upside break of 160.45 will target a retest on 161.94 high. However, firm break of 157.31/49 will bring deeper fall back to 61.8% retracement at 155.38 next.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 155.24) holds. Firm break of 161.94 will pave the way to 61.8% projection of 102.58 to 161.94 from 139.87 at 176.75.

Daily Pivots: (S1) 0.7808; (P) 0.7827; (R1) 0.7857; More….

USD/CHF's fall from 0.8041 resumed after brief consolidations and intraday bias is back on the downside. Sustained break of 61.8% retracement of 0.7603 to 0.8041 at 0.7770 will pave the way to retest 0.7603 low. On the upside, above 0.7844 minor resistance will turn intraday bias neutral again first.

In the bigger picture, rebound from 0.7603 medium term bottom is seen as correcting the fall from 0.9200 only. Rejection by 55 W EMA (now at 0.8071) will affirm this bearish case, and setup down trend resumption to 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382 at a later stage. Though, sustained break of 55 W EMA will suggest that it's probably correcting the larger scale down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 1.3498; (P) 1.3547; (R1) 1.3576; More...

Intraday bias in GBP/USD stays neutral first and more consolidations could still be seen below 1.3594. Further rally is expected as long as 1.3379 support holds. On the upside, firm break of 61.8% retracement of 1.3867 to 1.3158 at 1.3596 will extend the rise from 1.3158 to retest 1.3867 high.

In the bigger picture, current development suggests that price actions from 1.3867 are merely a corrective pattern within the broader up trend from 1.0351 (2022 low). With 1.3008 support intact, medium term bullishness is maintained and break of 1.3867 is back in favor for a later stage, towards 1.4248 key resistance (2021 high).