The S&P 500 and Nasdaq began last week on a positive note, supported by the technology sector and lower oil prices. However, the rally later lost momentum. Rising US Treasury yields, a renewed increase in oil prices and expectations of another Federal Reserve rate hike before year-end tempered investor optimism.
In the foreign exchange market, the US dollar strengthened firmly against most major currencies. It was supported by the Fed's hawkish rhetoric and growing expectations of a further rate hike. High yields on US government bonds and upbeat US macroeconomic data provided further support for the dollar.
Brent crude prices fell at the start of the week as supplies from Saudi Arabia recovered and exports through the Strait of Hormuz increased. Prices then surged amid a renewed escalation in the Middle East. By the end of the week, oil prices had declined again following reports that contacts between the US and Iran could resume.
US: GDP Growth Rate
The US economy has proved resilient for an extended period. However, high energy prices have intensified inflationary pressures across a range of sectors. The Federal Reserve has already raised its key interest rate, which could act as a constraint on economic growth. According to the latest data, the trade balance is weighing on the economy, with import growth substantially outpacing export growth. Analysts believe GDP growth could slow, potentially putting pressure on the US dollar. Against this backdrop, USD/JPY could move towards 156.40.
Eurozone: Inflation Rate
Energy prices remain high. Continuing restrictions in the Strait of Hormuz are contributing to fuel shortages and, consequently, higher prices, feeding through into the cost of goods and services. The Eurozone is also affected by this factor. Analysts do not rule out intensifying inflationary pressures in the region. In turn, rising inflation could reinforce expectations that the European Central Bank will raise interest rates, which is viewed as moderately positive for the euro. Should this scenario materialise, EUR/USD could attempt to rise towards 1.1500.
United States: Non-Farm Payrolls
The US labour market has recently shown heightened volatility, with periods of growth followed by sharp declines. For the reporting period, analysts allow for slower employment growth while the unemployment rate remains unchanged. Labour market conditions remain one of the key factors guiding the Federal Reserve's monetary policy decisions. The Fed previously raised rates to contain price pressures, despite mixed employment data. Nevertheless, weakness in key sectors of the economy could weigh on the US dollar. At the same time, a weaker US dollar traditionally supports dollar-denominated assets, including gold. As a result, XAU/USD could move towards 4,375.00.