US stock indices posted mixed performance last week amid conflicting factors. At the start of the week, markets came under pressure from high oil prices and expectations surrounding the US Federal Reserve’s interest-rate decision (the central bank raised rates). Technology stocks subsequently rebounded, helping the indices recoup their losses.
In the foreign exchange market, the dollar strengthened firmly against most major currencies. A key source of support was the Federal Reserve’s decision to raise interest rates by 0.25 percentage points amid high inflation. Expectations of a further tightening in monetary policy in October also increased, with the probability of such a move rising from 27% to 53% over the week.
Brent crude prices fell to $102.00 per barrel. The move was driven by easing concerns over supply disruptions, after Saudi Arabia offered additional oil cargoes for transshipment off the coast of Oman. The Fed’s rate rise was another factor behind the decline. Tighter monetary policy could weigh on economic activity and reduce demand for energy commodities.
Germany. Manufacturing PMI
Germany’s economy is heavily reliant on industry and is therefore sensitive to energy costs. Oil and gas prices remain elevated amid the conflict in the Middle East. Nevertheless, the manufacturing business activity indicator is rising. Analysts expect this trend to continue in the period under review. This is a positive factor for the German economy and the euro, signalling that the country is adapting to the new conditions. Against this backdrop, EUR/USD could rise towards 1.1580.
UK. Services Sector PMI
The services sector plays a key role in the UK economy, accounting for around 75% of GDP. After contracting in May and June this year, the sector’s business activity indicator returned to expansion territory, rising above 50.0. Analysts forecast a modest increase in the indicator in the period under review. This is a positive signal for sterling: economic stability would allow the Bank of England to raise interest rates if necessary. Against this backdrop, GBP/USD could resume its advance towards 1.3460.
US. Durable Goods Orders
Analysts forecast a decline in durable goods orders. This is a negative signal, pointing to a slowdown in US manufacturing and industrial investment. A deterioration in one of the key indicators, combined with the Fed’s rate rise and high inflation, could cool the US economy and put pressure on the dollar. Under these conditions, USD/JPY could resume its decline towards 155.80.
