Bonda Asia: Inflation Concerns Ease, US Dollar Index Retreats and Closes Lower

On March 17, the UK Office for National Statistics announced that, as shoppers prioritize healthier lifestyles, non-alcoholic beer has been added to the basket of goods used to measure UK inflation, while different categories of wine have been combined into one category. The agency also stated that it will begin tracking the price of chickpea hummus, as vegetables are currently underrepresented in the statistics. Although the UK inflation rate fell to 3.0% in January, the lowest in nearly a year, concerns about a resurgence of inflation have been triggered by soaring energy prices due to the Middle East conflict. The adjustment to the inflation basket comes at a sensitive time and will provide a more accurate benchmark for measuring changes in living costs. According to estimates released last week by ING and RSM UK, if recent increases in oil and gas prices are sustained, UK inflation could rise to more than twice the Bank of England’s 2% target. ING economist James Smith said that if oil prices continue to rise in the second quarter, inflation could reach 4.7% by September. RSM UK economist Tom Pugh estimates it could lead to inflation between 4.5% and 5%.

Additionally, the Federal Reserve released data on Monday showing that U.S. industrial production in February increased by 0.2% month-over-month, slightly above the market expectation of 0.1%. After revisions, January’s data still showed a 0.7% increase, and December’s was up 0.3%. Year-over-year, February industrial output grew by 1.4%. Capacity utilization in February was 76.3%, unchanged from January and above the market expectation of 76.2%. This level is consistent with February 2025, indicating stable industrial capacity utilization. By industry, manufacturing output rose 0.2% month-over-month, meeting expectations. Notably, automotive and parts production surged 1.7%, making it the main driver of manufacturing growth. Durable goods manufacturing increased by 0.1%, and non-durable goods by 0.2%. Mining output grew strongly by 0.8%, while utility output declined by 0.6%.

Today’s key data releases include the Eurozone March ZEW Economic Sentiment Index, Germany March ZEW Economic Sentiment Index, and the U.S. February Existing Home Sales Index (seasonally adjusted) month-over-month. Additionally, the Reserve Bank of Australia will announce its interest rate decision at noon, which warrants close attention.

Dollar Index

The Dollar Index declined yesterday, breaking below 100.00 and trading around 99.90. Aside from profit-taking weighing on the currency, falling oil prices eased inflation concerns, and the Fed’s hawkish expectations have cooled, both contributing to the dollar’s decline. The mixed economic data released in the U.S. had limited market impact. Today, focus on resistance around 100.50, with support at approximately 99.50.

EUR/USD

The euro rose yesterday, reclaiming the 1.1500 level, and is currently trading around 1.1490. Support came from short covering, and the dollar’s weakness due to profit-taking and reduced hawkish expectations from the Fed also supported the euro’s rebound. Additionally, expectations of ECB rate hikes provided some support. Today, watch for resistance near 1.1600 and support around 1.1400.

GBP/USD

The British pound rose yesterday, reclaiming the 1.3300 level, and is currently trading around 1.3310. Support was provided by short covering, and the dollar’s decline due to profit-taking and easing hawkish expectations from the Fed also helped the pound’s rise. Moreover, expectations that the Bank of England will hold rates steady this month support the currency. Today, focus on resistance near 1.3400 and support around 1.3200.