Global markets reassess inflation risks as oil surpasses $100

National Bank of Kuwait points in its weekly report to central banks’ move toward further monetary tightening

The National Bank of Kuwait’s weekly report on money markets, in its commentary on market performance, stated that global markets are increasingly pricing in inflation risks and expectations regarding the trajectory of monetary policy, amid rising energy prices and the implementation of new trade measures, which heighten the likelihood of persistent inflationary pressures alongside slowing growth.

Brent crude rose above the $100-per-barrel threshold before retreating at the close of last week’s trading, amid concerns over disruptions to major shipping routes. The surge in oil prices pushed up global bond yields and reinforced expectations that central banks would pursue further monetary tightening. In the United States, initial jobless claims fell by 22,000 to 187,000, marking the lowest level since 1969, indicating continued resilience in the labor market. Meanwhile, U.S. tariffs ranging from 10% to 12.5% applied to approximately 60 economies could intensify inflationary pressures and raise business costs.

Dollar Continues to Rise

The dollar rose in tandem with the climb in U.S. Treasury yields, closing the U.S. Dollar Index at 101.468 (+0.70%) last week.

In Canada, the consumer price index slowed to 2.8% year-on-year from 3.2%, and fell 0.4% month-on-month, while core inflation averaged 1.85%, providing further evidence of easing underlying price pressures. The U.S. dollar closed last week against the Canadian dollar at 1.4096 (+0.52%). In Europe, the European Central Bank kept its deposit facility rate unchanged at 2.25%, while signaling the possibility of monetary tightening in September, as eurozone inflation remained steady at 2.8% year-on-year and the composite Purchasing Managers’ Index rose to 51.9 points, indicating a return to private sector expansion.

Consumer Prices Slow

The euro ended last week’s trading against the US dollar at 1.1370 (-0.60%). In the United Kingdom, the consumer price index slowed to 2.6% year-on-year, while the composite purchasing managers’ index rose to 52.1 points, although renewed energy price pressures may reflect some of the recent progress in the disinflationary trajectory. The British pound ended last week’s trading against the US dollar at 1.3325 (-0.94%). In the Asia-Pacific region, China kept its benchmark loan interest rates for one-year and five-year terms unchanged at 3% and 3.5%, respectively, while total government fiscal expenditure fell by 11.9% year-on-year in June. In Australia, employment rose by 76,300 jobs month-on-month, while inflation accelerated in New Zealand to 4.1% year-on-year, bolstering expectations for further monetary tightening. The US dollar ended last week’s trading against the Chinese yuan at 6.7718 (-0.08%), while the Australian dollar and New Zealand dollar ended their trading against the US dollar at 0.6979 (-0.07%) and 0.5793 (-0.86%), respectively. Meanwhile, the Japanese yen continued its decline, with the US dollar ending last week’s trading against the yen at 163.83 (+0.87%). Overall, resilient labor markets, rising energy costs, and persistent inflation risks are likely to prompt major central banks to exercise caution in easing monetary policy, while tighter financial conditions and higher input costs could negatively impact global growth.

New Tariffs

The United States plans to impose new tariffs ranging from 10% to 12.5% on imports from approximately 60 economies, a move that reinvigorates the protectionist stance in President Donald Trump’s trade policy following the Supreme Court’s rejection of previous tariff measures.

A 10% tariff will be applied to a number of selected partners, including Mexico, the United Kingdom, Canada, and India, while tariffs on Japan, Switzerland, and South Korea will generally be capped at 12.5%. Goods from the European Union and Taiwan will mostly be subject to tariffs not exceeding 10%.

Although exemptions cover fuel, food, fertilizers, and products already subject to specific sectoral tariffs, the new system renews uncertainty surrounding global supply chains and US importers. These measures could contribute to increased inflationary pressures and business costs, particularly if future tariffs targeting manufacturing overcapacity are added. Meanwhile, retaliatory measures from trading partners could further weaken global trade and investment. The US Dollar Index ended last week’s trading at 101.468.