US stock indices saw mixed movement last week. In the first half of the week, the Nasdaq and S&P posted losses driven by rising Treasury yields, developments in the Middle East conflict and the run-up to the Federal Reserve meeting. They staged a turnaround on Thursday, however, largely fuelled by strong corporate earnings reports. Microsoft's results, in particular, bolstered investor confidence in AI's potential and provided a lift to the broader technology sector.
In the foreign exchange market, the US dollar remained under pressure. Markets were somewhat disappointed by the Fed's interest rate decision to leave its key interest rate unchanged. The move was interpreted as signalling a softer monetary policy stance. Even the Fed Chair's hawkish stance on inflation failed to shift sentiment. The Japanese yen led the gains against the dollar, with the USD/JPY pair briefly dropping to 158.00. In addition to the dollar's weakness, the yen was supported by expectations of potential intervention by the Bank of Japan.
Brent crude oil's price dynamics are continuing to be driven by the unfolding conflict in the Middle East. Risks surrounding Iran, the Strait of Hormuz, and potential supply disruptions kept prices up. However, prices corrected downward toward the end of the week as the maritime shipping situation improved and fears regarding an actual supply shortage eased. Nevertheless, the market remains highly sensitive to any news emerging from the region.
United States: Services 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 expect the figure to rise slightly, which reflects stabilisation within the sector. Given the previous downward revision of US Q2 GDP data, this development is good news for the US economy and the dollar. Against this context, USD/JPY could continue its rise toward 161.00.
Eurozone. Retail Sales
The European economy is on a less-than-favourable trajectory. Rising energy prices are driving up the cost of essential goods and services. Furthermore, the increasing costs associated with oil and gas logistics are being passed on to the end consumer. Domestic consumption is an important indicator of the nation's economic health. Global analysts anticipate retail sales volume to decrease across the Eurozone. This is a negative factor because an economic slowdown presents the ECB with a difficult choice between raising interest rates to combat inflation or maintaining an accommodating monetary policy to stimulate GDP growth. Weak data is bad news for the euro. In this environment, EUR/USD could decline to 1.1410.
The US. Non-Farm Payrolls
US labour market data remain mixed. On the one hand, the unemployment rate is holding steady at 4.2%. On the other, the number of new jobs created in the country has declined for three consecutive months. This sector's weakness is preventing the Federal Reserve from taking decisive monetary policy action to combat inflation, a risk that regulators themselves acknowledge. Global analysts expect job growth to accelerate slightly during the reporting period. This is a positive signal for the dollar but unfavourable for assets denominated in it, such as gold. In this context, XAU/USD could return to the support level at 4,000.00.