US equity indices posted mixed performance last week amid conflicting factors. The market received modest support from upbeat expectations for corporate earnings and a lower likelihood of a Federal Reserve rate increase following the regulator’s October meeting, amid weak labour market data. At the same time, high US Treasury yields and rising oil prices acted as constraints.
The Forex market also saw mixed movements. The main driver was the divergence in expectations for monetary policy among the leading central banks. Relatively high Federal Reserve interest rates supported the US dollar. Sterling remained resilient amid expectations that the Bank of England could tighten policy. The euro came under pressure due to political uncertainty in France and debt problems in the eurozone.
Brent Crude prices are holding above $100 per barrel. The rise in prices was driven by a combination of factors: continued geopolitical tensions in the Middle East, an approaching hurricane in the Gulf of Mexico (which forced US companies to suspend around 63% of production in the region), and declining US crude inventories. According to the Energy Information Administration (EIA), commercial crude inventories fell by 3.2 million barrels over the week, against expectations for an increase of 1.7 million barrels.
US: Inflation rate
Energy prices remain elevated, putting upward pressure on the cost of a wide range of goods and services. Analysts believe that US inflation may rise over the reporting period. Stronger inflationary pressures increase the likelihood of further Federal Reserve monetary tightening before the end of the year. Such expectations traditionally support the US dollar but may weigh on gold prices. Against this backdrop, XAU/USD could fall towards 4,100.00.
UK: GDP growth rate
The UK economy faces challenges similar to those confronting Europe: high energy prices are fuelling inflation and dampening consumer activity. Analysts see scope for a slowdown in monthly GDP growth. This would leave the Bank of England with a choice between containing inflation and supporting economic activity. Slower growth in this key indicator could put pressure on sterling, with GBP/USD potentially falling to 1.3150.
US: Retail sales
Despite elevated geopolitical uncertainty, the US economy remains relatively resilient. At the same time, rising energy prices are increasing fuel costs at the pumps, amplifying inflation risks and restraining consumer spending. Analysts expect retail sales growth to slow. At the same time, persistent inflation limits the Federal Reserve’s scope to pause monetary policy tightening. This factor could support the dollar, creating conditions for USD/JPY to advance towards 160.00.