US equity indices posted mixed performance last week, with the Nasdaq declining while the Dow Jones gained ground. This trend reflects market participants’ reassessment of the outlook for different sectors of the economy, prompting a reallocation of capital away from the technology sector (including AI) towards traditional industries such as healthcare and consumer goods. The foreign exchange market also saw mixed movements.
On the one hand, the dollar was supported by accelerating inflation, which strengthened expectations of another US Federal Reserve interest-rate increase before the end of the year. On the other hand, comments from Fed officials tempered these expectations, triggering a trend reversal in the second half of the week. Falling US Treasury yields added further pressure.
Brent crude prices are holding near $105 per barrel. Prices continue to be supported by persistent geopolitical tensions in the Middle East, including attacks on infrastructure facilities in Saudi Arabia and on tankers, as well as restrictions on shipping through the Strait of Hormuz. Prices were also supported by data showing that US commercial crude inventories fell by more than expected.
Germany: ZEW Indicator of Economic Sentiment
Energy prices remain highly volatile and elevated due to geopolitical tensions in the Middle East. High energy prices are weighing on inflation expectations and slowing economic growth. Against this backdrop, pessimism is growing among German businesses. Analysts believe the ZEW Indicator of Economic Sentiment may decline in the reporting period. Weak macroeconomic data may weigh on the single currency: should the figures deteriorate, EUR/USD could fall to 1.1140.
UK: Inflation Rate
The UK economy faces challenges similar to those confronting Europe: high energy prices are fuelling inflation and dampening consumer activity. Monthly GDP growth slowed to 0.1%. At the same time, analysts do not rule out stronger price pressures in the UK during the period under review. Higher inflation could prompt the Bank of England to tighten monetary policy further, potentially supporting sterling. Against this backdrop, GBP/USD could rise to 1.3480.
US: Consumer Sentiment Index (University of Michigan)
According to the latest data, US inflation stood at 3.7% year on year. Rising fuel prices have increased the cost of a broad range of goods and services. Under current conditions, analysts’ forecasts of a potential decline in the University of Michigan Consumer Sentiment Index appear well-founded. Weaker macroeconomic indicators may weigh on the US dollar, with USD/JPY potentially falling to 156.40 in the short term.