Last week, US stock indices attempted to make an upward correction. This movement was driven largely by technical factors. It should be noted, however, that Treasury yields began to decline, which somewhat supported the market. Tech companies' gains were also good news. Even with that, continuing high inflation expectations, which are being fuelled by high energy costs, held back a full-fledged rally. In the forex market, the US dollar strengthened, primarily because of renewed expectations that the Fed will tighten its monetary policy. These expectations were triggered by the release of the Personal Consumption Expenditures (PCE) Price Index, which beat forecasts with 3.7% versus an expected 3.6%. This signals that price pressure is rising, all while inflation has been above the Fed's target for over five years now.
After the report was released, the probability of a rate hike in September rose from 36% to 40%. At the start of the week, Brent crude prices fell to $85.30 amid reports that Iran and Oman were discussing a temporary joint navigation corridor through the Strait of Hormuz. That development altered expectations about energy supplies. That wasn't meant to be, however. First off, the weekly rise in US crude oil inventories came in five times lower than the forecasted level. Secondly, Trump dashed hopes for a diplomatic agreement with Iran.
Eurozone: Inflation rate
Energy prices remain high. Continuing restrictions in the Strait of Hormuz are contributing to fuel shortages and, therefore, pushing prices higher. This inevitably impacts the cost of goods and services. The Eurozone is also affected by this factor. Global analysts anticipate that inflationary pressure will intensify in the region. In turn, rising inflation is reinforcing expectations that the European Central Bank will raise its interest rate, which is a positive factor for the euro. In this context, the EUR/USD could rise to 1.1780.
United States: ISM Services Sector PMI
The US services sector remains resilient, with the PMI remaining in expansion territory. This is a positive sign since the sector accounts for approximately 75% of the country's GDP. Analysts nevertheless expect the index to stay above 50 (the growth zone) but decline versus the previous period. With persistent inflation, this is unlikely to push the Fed to cut its interest rate. However, in the short term, a weaker key indicator could be unfavourable for the dollar. In this scenario, USD/JPY could decline towards 158.00.
United States: Non-Farm Payrolls
In the last reporting period, the US labour market showed signs of cooling down. The number of newly created jobs has decreased fairly sharply. In addition to that, the figures for May and June were also revised downwards. Global analysts expect the economy to begin creating new jobs again during the reporting period, although extremely slowly. Meanwhile, the unemployment rate is expected to rise. That means that more signs of trouble in this sector are appearing. The labour market's health continues to be a key factor for the Federal Reserve's monetary policy decisions. However, with rising inflation driven by higher energy prices, the regulator is unlikely to cut interest rates. Overall, deteriorating macroeconomic indicators are putting pressure on the dollar. At the same time, the US dollar's weakening is supporting assets denominated in it, particularly gold. In this context, XAU/USD could rise toward 4,700.00.