US stocks traded mixed last week. At the start of the week, they declined after US Federal Reserve Chairman Kevin Warsh's speech at Jackson Hole. In it, he signalled that interest rates could be raised as early as September. A new wave of escalations in the Middle East also impacted market sentiment, although that turned around on Wednesday. The reversal was driven partly by technical factors and partly by attempts from Federal Reserve officials to soften the impact of the chairman's previous statements.
In the forex market, the dollar strengthened slightly against most currencies early in the week, driven by fears of rising inflation and growing expectations of a rate hike. The trend later reversed, however. The US currency suffered its biggest losses against the yen after Bank of Japan officials suggested the need for more rapid rate hikes. That fuelled expectations that the BoJ would tighten its monetary policy as early as September.
Brent crude prices climbed back toward $95.00, driven primarily by developments in the Middle East. There are also reports of supply disruptions in the Persian Gulf. It's also worth noting that US crude oil inventories fell sharply, dropping by 4.5 million barrels over the week versus a forecast of a 1.1 million-barrel decline.
Eurozone: ECB interest rate decision
In July, the ECB held interest rates unchanged at 2.4%. However, the central bank reportedly discussed raising borrowing costs. ECB President Lagarde noted that a move to tighten monetary policy in September couldn't be ruled out. The decision will depend on the latest macroeconomic data. Global analysts expect the central bank to raise rates by 0.25% in September. This is entirely justified since Eurozone inflation rose to 3.3% in August. A rate hike would be good news for the euro. In this context, the EUR/USD could rise to 1.1780.
UK: GDP growth rate
The UK economy faces the same challenges as the rest of Europe. High energy prices are fuelling inflation and dampening consumer spending, which is weighing on the economy since the services sector makes up most of it. Analysts expect monthly GDP growth to slow. That would leave the Bank of England with a difficult choice: tackle inflation or support economic growth. A slowdown in this key indicator would be negative for the pound, and GBP/USD could fall in the short term to 1.3450.
US: Inflation rate
New strikes between the US and Iran are escalating tensions in the Middle East. This has resulted in high energy prices, which are factored into the cost of virtually all goods and services. That, in turn, is driving up inflation. Against this backdrop, inflation remains above the Fed's target. Analysts expect the figure to remain unchanged at 3.4% year-over-year. That could strengthen expectations that the Fed will hike its key interest rate, which would be good news for the dollar but unfavourable for dollar-denominated assets. In these conditions, XAU/USD could fall toward 4420.00.