US indices showed mixed movement last week as they remained near previously reached levels. Developments in the Middle East remain the key driver. Fighting has been paused for now, but the rhetoric among international leaders is raising concerns that the conflict could resume, which is restraining growth for indices. In the forex market, the dollar strengthened against most major currencies. It received support from the continued uncertainty stemming from the conflict between the US and Iran. Iran's seizure of two ships in the Strait of Hormuz in spite of the extended ceasefire increased demand for defensive assets. By the end of the week, Brent crude oil prices had once again returned to $100.00 a barrel. The reason for this is the continued high geopolitical tension. Iran released a video showing its special forces boarding a cargo ship near the Strait of Hormuz. All this indicates that problems with shipping energy resources from the Middle East persist.
US Federal Reserve rate decision
US GDP growth is slowing, which signals that the economy is cooling. The Federal Reserve has cut rates several times over the past year to stimulate economic growth. However, at this stage, the regulator has decided to take a pause. Global analysts expect the Fed to keep its key rate unchanged. There are objective reasons for doing so. The conflict in the Middle East has sent energy prices soaring, which has resulted in higher inflation. According to the latest data, inflation has risen to 3.3%. Keeping rates unchanged is unfavourable for the dollar but good news for gold. In this context, XAU/USD could rise to 4723.60.
Bank of England rates decision
As fuel gets more expensive, inflation in the UK has risen to 3.3%. Petrol prices have increased by 8.7%. Despite higher inflation, global analysts expect the Bank of England to keep its key interest rate unchanged at 3.75%. The UK economy is still experiencing relatively low growth, and higher borrowing costs will only increase pressure on the economy. Keeping the rate unchanged is favourable for the pound. In this context, we could see GBP/USD return to somewhere around 1.3650. ECB. Key interest rate decision
The EU's economy is extremely sensitive to the current geopolitical situation
Rising energy prices are having a significant negative impact on both inflation and economic growth. Germany, the largest economy in the Eurozone, is heavily reliant on manufacturing, which is highly energy-intensive. As such, in the current circumstances, the ECB is likely to be relatively accommodative at the end of its meeting. This is unfavourable for the euro. In this environment, EUR/USD could continue to drop to somewhere around 1.1510.