Powell Cautions on Growth as Retail Sales Surge

US economic data shows a rebound in consumer spending, while Powell cautions, and trade tensions keep markets on edge.

The latest US economic session delivered a mixed narrative for global markets, with rebounding consumer spending clashing against a cautious tone from Federal Reserve Chairman Jerome Powell. Investors were left parsing signs of resilient retail activity alongside warnings of growing uncertainty tied to international trade and monetary policy.

Retail sales data brought a welcome surprise. After a 1.2% month-over-month (MoM) drop in January, US consumer spending staged a recovery with a 0.2% rise in February. That momentum accelerated in March, as retail sales climbed 1.4% MoM, edging past the 1.3% forecast and marking the strongest monthly gain since January 2023.

Leading the surge were purchases in motor vehicles and parts, building materials, and sectors tied to leisure and hobbies. The solid performance suggests that American consumers remain willing to spend, despite elevated inflation and lingering economic uncertainty.

Powell Cautions on Growth as Retail Sales Surge

However, optimism was tempered by Federal Reserve Chairman Jerome Powell, who delivered a notably cautious outlook during a speech at the Economic Club of Chicago. Powell acknowledged the recovery in consumer activity but underscored signs of a broader slowdown in economic growth.

“The current situation is extremely uncertain,” Powell said, referencing the growing impact of US trade policy. He warned that recently announced tariffs—substantially larger than previously estimated—could fuel inflation while simultaneously dampening growth and employment. The Fed, he added, is in no rush to alter its monetary policy stance until more clarity emerges.

Markets responded swiftly. The US dollar index (DXY) fell 0.9% on Wednesday, dipping to 99.17—its lowest level in over a month—as Powell’s remarks weighed on investor sentiment.

Asia Responds to US Signals, Local Developments

In the Asian trading session, markets reacted to the weaker dollar and Powell’s cautious tone. Local economic data also took center stage.

New Zealand posted a sharp rise in consumer inflation, with Q1 prices climbing 0.9% quarter-over-quarter (QoQ)—the highest since September 2023. The jump, driven by soaring petrol prices and education costs, exceeded forecasts and may pressure the Reserve Bank of New Zealand to revisit its policy stance.

Japan, meanwhile, reported a ¥544.1 billion trade surplus in March—its second straight month in the black. Exports rose 3.9% year-over-year, continuing a positive trend. Despite this, the yen softened, with USD/JPY rising above 142.50 after touching a low of 141.60.

Key Events on the Horizon

Traders are now eyeing several pivotal events:

• US Unemployment Claims (12:30 pm GMT): Expected to rise slightly to 225k. A weaker print could further weigh on the dollar.
• ECB Rate Decision & Press Conference (12:15 pm & 12:45 pm GMT): Markets widely anticipate a 25-basis-point cut, with attention on the central bank’s forward guidance.
• Australia Labour Force Report (1:30 am GMT): Analysts forecast 39.8k new jobs and a possible uptick in unemployment to 4.2%.

Market Snapshot: Next 24 Hours Bias

• Dollar Index (DXY): Weak Bullish
  • Cautious Powell comments hit sentiment, but jobless claims could offer support.
• Gold (XAU): Weak Bearish
  • Dollar weakness helps, but strong US data could limit upside.
• Australian Dollar (AUD): Weak Bearish
  • Labour Force Report expected to be a key catalyst.
• New Zealand Dollar (NZD): Weak Bearish
  • Surging inflation may impact the Reserve Bank’s policy stance.
• Japanese Yen (JPY): Weak Bullish
  • Gains from trade surplus muted; USD strength in focus.
• Euro (EUR): Weak Bearish
  • All eyes are on the ECB rate cut and the tone of the press conference.
• Swiss Franc (CHF): Weak Bullish
  • Benefiting from risk-off sentiment and safe-haven flows.
• Pound Sterling (GBP): Weak Bearish
  • Sensitive to broad market movements despite earlier strength.
• Canadian Dollar (CAD): Weak Bullish
  • Steady on Bank of Canada’s pause and cautious optimism.
• Oil: Weak Bullish
  • Prices are supported by geopolitical tensions and supply risks.

As global markets digest Powell’s caution, upbeat US retail data, and shifting trade dynamics, attention turns to upcoming data releases and central bank commentary. In a climate Powell described as “without historical parallel,” volatility remains the only certainty.

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