Last week, US markets were mostly up. The Nasdaq and S&P 500 set new all-time highs again. They're being supported by hopes that the conflict in the Middle East will soon end. Corporate earnings reports served as an additional positive factor.
On the foreign exchange market, the dollar showed a mixed trend. On the one hand, hopes for a speedy resolution to the conflict between the US and Iran are lowering interest in the dollar as a safe-haven asset. On the other hand, deteriorating conditions in a number of economies in other regions are putting downward pressure on national currencies, something that the dollar is benefiting from. Prices on Brent crude oil dropped to around $100 per barrel.
The media agency Axios reported that the United States and Iran are close to reaching an agreement that would help stop the war. This sparked hopes that energy market shipments would normalise and served as the primary driver behind the drop in prices.
Germany's ZEW Indicator of Economic Sentiment
The conflict in the Middle East has forced the global economy to adjust. The blockade of the Strait of Hormuz has led to shortages of energy resources and various other commodities. Rising prices are negatively impacting inflation expectations and contributing to an economic slowdown. In this context, an increasing number of German business community members are feeling pessimistic. Global analysts expect the ZEW Institute's Indicator of Economic Sentiment to continue to drop. The weak performance of key macroeconomic indicators is negatively affecting the euro. In this scenario, EUR/USD could decline to 1.1760.
The US. Inflation rate
While the Middle East conflict is gradually subsiding, the Strait of Hormuz remained closed to most vessels throughout April, which negatively affected global oil and liquefied gas supplies. This is leading to rising energy prices, which are also factored into the prices of other goods and services. In these circumstances, global analysts anticipate further inflation in the United States. Rising inflation will prevent the Fed from cutting its key interest rate to stimulate economic growth. Maintaining a tight monetary policy is good news for the dollar but unfavourable for dollar-denominated assets, such as gold. In this context, XAU/USD could decline to 4,670.00.
The US. Retail sales
Despite the high geopolitical uncertainty, the US economy is relatively stable. However, rising energy prices have undoubtedly led to an increase in petrol prices, which intensifies inflationary pressures and dampens consumer activity. Global analysts expect US retail sales to slow down. Meanwhile, despite key indicators somewhat cooling, rising inflation will keep the Fed from moving to lower its key interest rate. That means the regulator will continue to pause its monetary policy easing cycle. This is a good signal for the dollar. In this scenario, USD/JPY could rise to 157.70.