US indices posted mixed performance last week. The Dow Jones edged higher, while th Nasdaq and S&P 500 corrected from recent highs. This reflected investor caution amid persistent geopolitical tensions and elevated energy price volatility. Gains were also held back by expectations that the Fed will keep rates higher for longer.
The FX market also saw mixed trading. The Middle East conflict and elevated energy prices drove sharp volatility. Markets continue to face two competing pressures. On the one hand, rising inflation is prompting major central banks to keep rates elevated. On the other, the energy crisis is dampening economic activity, which points towards a more accommodative policy stance.
Brent crude remains closely tied to developments in the Middle East. Early in the week, reports of a new escalation pushed prices higher. Prices were also supported by data showing a draw in US commercial crude inventories. However, prices then retreated after renewed signals that US–Iran talks are ongoing. As a result, Brent settled back at $94.70 per barrel.
US: Inflation Rate
Energy prices remain elevated. Possible restrictions in the Strait of Hormuz could tighten fuel supply and, in turn, push prices higher. This inevitably feeds through into the cost of goods and services. In recent months, US inflation has risen to 3.8% year on year. Analysts widely expect inflationary pressure to increase further. Higher inflation, in turn, supports expectations that the Federal Reserve will keep interest rates at their current level for now, at least in the near term. A hawkish policy stance is supportive for the US dollar but a headwind for USD-denominated assets such as gold.
ECB Monetary Policy Decision
The difficult geopolitical situation in the Middle East has affected many economies. A closure of the Strait of Hormuz — through which roughly 20% of global oil and LNG supplies transit — has pushed energy prices higher. This, in turn, has added to price pressures. Against the backdrop of rising inflation in the euro area, market participants expect the ECB to raise rates at its next meeting. This would provide near-term support for the euro.
US: Consumer Sentiment Index (University of Michigan)
According to the latest data, US inflation reached 3.8% year on year — the highest level since May 2023. Higher gasoline prices have pushed up the cost of most goods and services. However, analysts widely expect a modest improvement in consumer sentiment, helped by hopes of a near-term deal between the US and Iran and a reopening of the Strait of Hormuz, which could ease energy prices and reduce pressure on consumers. Better macro data is typically supportive for the dollar.