The US Nasdaq and S&P 500 indices once again hit all-time highs. However, by the end of the week, they nonetheless entered a downward correction. The indices required an additional catalyst to sustain their upward momentum. The markets had hoped it would come from the meeting between Donald Trump and Xi Jinping. The negotiations, however, failed to yield a breakthrough, which prompted investors to close out a portion of their long positions.
In the forex market, the US dollar strengthened after receiving support from rising demand for safe-haven assets. The catalyst lies in a warning issued by China to the United States about its military aid to Taiwan. Markets seriously fear that another armed conflict could emerge on the global map.
Prices on Brent crude oil once again rose to around $109 per barrel. The energy resource is gaining support from the persisting tensions in the Middle East and the dim prospects of a speedy reopening of the Strait of Hormuz. Donald Trump has also stated that he's losing patience with the conflict with Iran, which signalled an increased likelihood of a new round of escalation.
The UK. Inflation rate
Energy prices remain high. Markets are waiting for the conflict between the United States and Iran to be resolved and the Strait of Hormuz to open up. That's not happening yet, which is creating an energy supply deficit and pushing petrol prices in many countries higher. Of course, this also impacts the cost of other goods and services. In these circumstances, higher inflation is objectively inevitable. Rising inflation is fuelling expectations that the Bank of England will raise interest rates. This is favourable for the pound. Against this backdrop, GBP/USD could rise to 1.3430.
US Federal Reserve meeting minutes
At its April meeting, the US Federal Reserve left its key rate unchanged. At the same time, representatives of the regulator noted that inflation is moving in a "somewhat wrong direction". The conflict in the Middle East has triggered a sharp rise in energy prices, which is contributing to higher inflation. The Fed's continued hawkish stance is good news for the dollar but negative for assets denominated in it, such as gold. In this context, XAU/USD may continue to decline towards 4,490.00.
The US. University of Michigan Consumer Sentiment Index
According to the latest data, the US inflation rate has risen to 3.8% year over year, the highest level since May 2023. Rising petrol prices have triggered an increase in the cost of most goods and services. In these circumstances, global analysts have good reason to believe that the consumer sentiment index will decline, as public confidence in the future is waning. A decline in this metric, a macroeconomic indicator, is bearish news for the dollar. In this scenario, USD/JPY could see a short-term decline to 157.60.