US inflation came in slightly higher than market expectations, prompting concerns that central banks may wait longer to cut interest rates.
Consumer price inflation in March sped up to 3.5% from 3.2% the month prior and came in hotter than forecasts of 3.4%.
Similarly, the core CPI index, which excludes food and energy prices, reached 3.8%, the same as in February, but higher than estimates of 3.7%.
On a monthly basis, headline inflation came in at 0.4% for the third consecutive month, more than double the rate economist said was needed to bring inflation down to target levels.
Britain reacts
The FTSE 100 plummeted around 65 points and the pound stumbled 0.8% lower, as a result.
Much of the disappointment is attached to concerns that the first round of US Federal Reserve, and likely also the Bank of England, interest rate cuts will come later in the year rather than in summer.
Richard Flynn, managing director at Charles Schwab UK, said: "In recent months it has become clear that the journey to the Fed’s target of 2% inflation will be bumpy and central bankers are proceeding with caution when it comes to rate changes.
"It’s often said that the Fed takes the escalator up and the elevator down when setting rates, but for the path downwards in this cycle, it looks like they will opt for the stairs.”
No June rate cut, maybe not July either
Hopes of a June cut by the Fed are now essentially dead in the water, market analysts said.
US markets have now priced out a June rate cut, with swaps indicating just two cuts totalling half a percentage point this year.
This was down from the six cuts that traders were expecting as of December last year.
Neil Wilson at Finalto said: "Treasury yields spiked sharply, and the dollar rallied whilst gold and stocks declined.
"The 2yr Treasury yield jumped around 20bps to 4.950% and the 10yr was up 13bps to 4.50% (indicating) markets pricing in the Fed staying higher for longer.
"The fact the move in the short-term rate is more than the longer suggests this is chiefly about what the market thinks the Fed will do next."
The "higher for longer" narrative on rates is firmly in place now, said US economist James Knightly at ING. "September is going to be the earliest opportunity for any policy easing."