Last week, US indices fell. The key factor putting pressure on markets is the high geopolitical tensions in the Middle East and the energy crisis, which affects all key sectors of the real sector.
The US Federal Reserve added to the negative sentiment when it decided to keep interest rates unchanged due to rising inflation. The US dollar showed mixed dynamics. On the one hand, rising energy prices are increasing demand for the US dollar. On the other hand, the conflict in the Middle East could lead to a decline in business and consumer activity in the country.
Combined with the weak labour market, this sets off alarm bells for the US economy and puts short-term pressure on the dollar. Brent crude oil prices are once again experiencing high volatility. At one point, they returned to last week's highs ($119.49). By the end of the work week, prices had fallen to around $108.00. The key catalyst for these movements is the developments in the Middle East. The IEA is starting to coordinate supplies from emergency stockpiles, and Trump said he wouldn't send additional troops to the Middle East for the operation against Iran to give the perception of somewhat easing the escalation.
Germany. Manufacturing PMI
The German economy is heavily reliant on manufacturing. As such, manufacturing PMI plays an important role in assessing the economy's health. Global analysts expect this figure to drop from the previous period for two reasons. First, the manufacturing sector requires energy resources, which are currently expensive. Second, some regions are, among other things, facing a shortage of said resources. This is bad news for the euro because Germany is the Eurozone's largest economy. In this environment, EUR/USD could decline to 1.1470.
The UK. Inflation rate
The UK's inflation rate continues to decline. The crisis in the Middle East, however, has triggered a surge in energy prices. That's why global analysts expect inflation in the UK to increase month over month. Rising inflation will prevent the Bank of England from cutting interest rates to stimulate the economy. But a high key rate is also good for the British pound. In this context, GBP/USD could resume upward movement to 1.3500.
The US. Consumer sentiment index from the University of Michigan
In recent months, the University of Michigan's Consumer Sentiment Index has seen positive movements. However, the heightened tensions in the Middle East have caused gasoline prices in the US to rise sharply. Higher energy prices are fuelling inflation, which is affecting consumers' assessments of their own prospects and how the economy will perform. Global analysts expect this indicator to decline. This is bad news for the dollar in the short term. In this scenario, USD/JPY could decline to 157.60.