Q1 2026Quarterly reportMarch reversed the dollar’s early decline as the inflation picture changed
The dollar’s March recovery reversed its early-quarter decline, while later releases showed a sharper rise in headline than core US inflation.
Data window: 1 January 2026–31 March 2026
On this page
The dollar finished the first quarter stronger against a broad currency basket, but that endpoint conceals a reversal. It fell in January, barely moved in February and recovered sharply in March. Meanwhile, US consumer-price data for the quarter changed from relatively stable annual inflation to a much faster headline reading for March, with a smaller change in inflation excluding food and energy.
This is an external market retrospective for January–March 2026, using Federal Reserve and US Bureau of Labor Statistics sources. It examines selected dollar exchange rates and the US economy, not PineConnector’s full-quarter instruction activity or a comprehensive review of global markets. The distinction between the economic period and the release date matters throughout: the March inflation figures became public in April, after the currency quarter had ended.
March more than reversed the early dollar decline
The Federal Reserve’s nominal broad dollar index rose +1.08% between the 31 December and 31 March observations. “Broad” means that the index combines the dollar’s exchange rates against a weighted basket of currencies. “Nominal” means that it measures those exchange rates without adjusting them for changes in national price levels. A higher reading indicates dollar appreciation against that basket. Federal Reserve broad dollar index, index definitions.
That quarterly gain did not develop evenly. The index fell 1.54% in January and edged down 0.07% in February. March’s +2.73% increase then carried it above its year-end starting point. The month-end path therefore changes the description from a steady dollar advance to a late-quarter reversal. Federal Reserve daily observations.
monthly broad dollar index change (%)
Each bar compares consecutive month-end reference observations. The whole-quarter change is calculated directly from its endpoints, not by adding these rounded values.
Source: Board of Governors of the Federal Reserve System: H.10 nominal broad dollar index, daily Download data (CSV): Figure 1
View figure data
| Measure | Period or release date | Value |
|---|---|---|
| January | 2025-12-31 to 2026-01-30 | −1.54% |
| February | 2026-01-30 to 2026-02-27 | −0.07% |
| March | 2026-02-27 to 2026-03-31 | +2.73% |
Month-end observations still leave much of the path unmeasured. They identify the direction between selected dates, but do not establish the largest daily fall, the strongest intramonth recovery or a volatility estimate. “March reversed the decline” is supported by these endpoints; “the quarter was an uninterrupted dollar rally” is not. Nor does the calendar sequence identify the event responsible for the reversal.
The euro and yen confirm the reversal, with different-sized moves
The selected bilateral rates tell a similar directional story. EUR/USD, the number of US dollars per euro, finished the quarter 1.86% lower. USD/JPY, the number of Japanese yen per US dollar, finished 1.45% higher. Those opposite changes in the quoted rates both indicate dollar appreciation: fewer dollars bought a euro, while a dollar bought more yen. Federal Reserve euro reference rates, yen reference rates.
January had moved the other way. EUR/USD rose +1.27%, while USD/JPY fell 1.57%. By March, EUR/USD fell 2.57% and USD/JPY rose +1.94%. The broad-index reversal thus had visible counterparts in both selected currency pairs, rather than appearing only in the basket measure. Federal Reserve euro series, yen series.
reference-rate change (%)
Fed reference observations. Higher EUR/USD means a stronger euro; higher USD/JPY means a stronger dollar against the yen. Changes exclude costs and are not broker execution returns.
Source: Board of Governors of the Federal Reserve System: H.10 nominal broad dollar index, daily; Board of Governors of the Federal Reserve System: H.10 euro daily reference rate; Board of Governors of the Federal Reserve System: H.10 Japanese yen daily reference rate Download data (CSV): Figure 2
View figure data
| Measure | Period or release date | Value |
|---|---|---|
| Broad US dollar index | 2025-12-31 to 2026-03-31 | +1.08% |
| EUR/USD | 2025-12-31 to 2026-03-31 | −1.86% |
| USD/JPY | 2025-12-31 to 2026-03-31 | +1.45% |
The agreement in direction does not make the measures interchangeable. A broad index includes currencies beyond the euro and yen, with weights that affect the combined result. Its quarterly change need not equal either pair’s change or their simple average. It answers how the dollar changed against its defined basket; a bilateral rate answers how it changed against a particular currency. Federal Reserve index methodology.
Quote direction also matters when describing the yen itself. A rise in yen per dollar is not the same percentage as the fall in dollars per yen, because reversing the quote changes the denominator. This report keeps USD/JPY in its published quote direction. All selected currency observations use the Federal Reserve’s New York noon reference convention, not broker closing prices or executable quotes. Their changes are exchange-rate comparisons, not trading returns after spreads, financing and other costs. About H.10.
March’s headline inflation acceleration was much larger than core’s
US consumer-price inflation changed more sharply at the headline level than at the core level. The Consumer Price Index, or CPI, measures changes in the prices paid by consumers for a defined basket. Headline CPI includes the full basket; core CPI excludes food and energy. Those exclusions help separate a broader price measure from categories that can move sharply, but they do not make food and energy irrelevant to households.
In the original releases, headline CPI was 2.4% above a year earlier in January and 2.4% in February. March’s annual reading rose to 3.3%. Core annual inflation moved from 2.5% in February to 2.6% in March. These are year-on-year readings for individual months, not inflation accumulated over the quarter. January CPI release, February release, March release.
12-month CPI-U price change, not seasonally adjusted (%)
Each observation compares one month with the same month a year earlier. These are monthly year-on-year readings, not a quarterly inflation rate. Releases followed the reference month.
Source: US Bureau of Labor Statistics: CPI 2026-01 original news release; US Bureau of Labor Statistics: CPI 2026-02 original news release; US Bureau of Labor Statistics: CPI 2026-03 original news release Download data (CSV): Figure 3
View figure data
| Measure | Period or release date | Value |
|---|---|---|
| January · All items | Released 2026-02-13 | 2.4% |
| January · Excluding food and energy | Released 2026-02-13 | 2.5% |
| February · All items | Released 2026-03-11 | 2.4% |
| February · Excluding food and energy | Released 2026-03-11 | 2.5% |
| March · All items | Released 2026-04-10 | 3.3% |
| March · Excluding food and energy | Released 2026-04-10 | 2.6% |
The monthly figures make the distinction clearer. March headline CPI rose 0.9% from February after seasonal adjustment, which adjusts for recurring seasonal patterns. Core CPI rose 0.2%, while the energy index rose 10.9%. Energy’s much larger movement helps explain why the full basket and the measure excluding food and energy presented different pictures. The category’s percentage change is not its percentage-point contribution to the total, which would also require its weight. March CPI detail.
The quarter’s economic data arrived on a different clock
March’s CPI figures were released on 10 April. January’s figures appeared on 13 February, and February’s on 11 March. The data describe prices during the quarter, but the complete quarter was not observable through these official releases by the end of March. BLS January, February and March releases.
This creates a meaningful distinction between an economic retrospective and a description of market reactions. The former can describe March prices using the later release. The latter would need to establish what information was public before a particular exchange-rate move, what had been expected and what else changed at the same time. Aligning a March currency change with March inflation does not complete that work.
Could the dollar have moved ahead of the official release? It is possible for exchange rates to respond to expectations and to information available elsewhere. But this report does not contain a dated record of those expectations, so that possibility cannot become an explanation of the observed March recovery. The absence of a contemporaneous official release rules out calling the move a response to that release; it does not identify an alternative cause.
An unchanged policy range did not produce an unchanged dollar
The Federal Open Market Committee, the Federal Reserve’s monetary-policy committee, maintained its federal funds target range at 3.50% to 3.75% on 28 January. It maintained the same range on 18 March. These decisions are a stable policy reference alongside a currency path that changed direction. January policy statement, March policy statement.
There is no contradiction between an unchanged announced interest-rate range and changing exchange rates. The policy range describes the committee’s current decision. A currency price can incorporate views about future interest rates, inflation, economic conditions and developments in the other currency’s economy. The fact that the current US range stayed fixed does not hold all those other considerations constant.
The strongest alternative to a simple US-inflation explanation is therefore not another confidently named cause. It is that several factors, including developments outside the United States, could fit the same endpoint record. This retrospective can establish the policy decisions and the dollar path. It cannot rank competing explanations of that path from their coexistence alone.
The labour releases resist a smooth growth narrative
The original Employment Situation releases also changed direction. January’s initial estimate showed US nonfarm payroll employment increasing by 130,000 jobs. February’s initial estimate showed a change of -92,000 jobs, followed by March’s initial increase of 178,000. Nonfarm payrolls measure employment on employer payrolls outside agriculture; these monthly changes are seasonally adjusted. January employment release, February release, March release.
The unemployment rate, drawn from a separate household survey, was 4.4% in February’s release and 4.3% in March’s. Payroll changes and unemployment are related measures of the labour market, but they answer different questions and do not need to move in lockstep. An employment change counts jobs in one survey; the unemployment rate describes people without work who meet the survey’s unemployment definition. February and March employment reports.
These figures show what each initial release reported, rather than a single later revision of the entire quarter. Adding them would create a total assembled from different publication vintages, so no quarterly payroll total is presented here. March’s report was also released on 3 April. As with CPI, its reference month should not be confused with the date when its headline estimate became public.