Last week, US stock indices were mostly down. A key negative factor was the rise in Treasury yields, which hit a nearly 20-year high on Tuesday. Rising oil prices, inflation expectations, as well as the massive US national debt and budget deficit are simultaneously creating pressure. In addition to that, the Federal Reserve's latest meeting minutes added to the negative sentiment. They showed that three officials voted for an interest rate hike, which implies, at the very least, that no monetary policy easing is on the horizon.
The dollar significantly weakened in the forex market. One reason for this was weak macroeconomic data, which would typically point toward a rate cut. The fairly hawkish Fed meeting minutes didn't do anything to alter the dollar's trajectory here. Investors are also increasingly concerned about the large US national debt and budget deficit, which makes American assets less appealing. In this context, some capital is shifting into the euro, the pound and gold.
At the moment, Brent crude oil has reached $94.60 a barrel. The primary driver for this rise is a new wave of escalation involving Iran and the Strait of Hormuz. The truce between Iran and the US has expired, the countries' negotiations have effectively stalled, Washington is threatening to tighten sanctions on Iran, and tanker traffic through the Strait of Hormuz remains severely restricted.
US: GDP growth rate
The US economy remains relatively stable, though its growth rate is slowing. Preliminary estimates show GDP growth dropping to 1.5%, down from 2.1% in Q1. High oil prices and the volatile geopolitical climate keep global analysts from expecting this figure to be significantly revised. That means that the Federal Reserve will be unable to raise interest rates in the near term since doing so could further stifle economic growth. The labour market's cool-down is another factor at play. This is unfavourable for the US dollar but good news for gold. In this context, XAU/USD could rise to 4600,00.
Germany: Unemployment rate
The labour market situation in Germany remains complicated. High energy prices are leading to reduced production volumes and the suspension of operations at some facilities. Naturally, one consequence of these processes is a loss of jobs, which has resulted in the unemployment rate's steady rise. Global analysts expect the pace of the unemployment rate hike in Germany to slow slightly during the reporting period. This is good news for the European economy and the euro. In this context, EUR/USD could rise to 1.1780.
US: University of Michigan Consumer Sentiment Index
The US inflation rate is gradually declining. However, it remains significantly higher than the Federal Reserve's target. At the same time, a new wave of escalation in the Middle East is raising concerns about further energy price hikes, which would negatively impact price levels. Global analysts expect consumer sentiment to weaken again, especially given the current labour market situation. A decline in key macroeconomic indicators is bad news for the US dollar. Against this background, USD/JPY may resume its decline to 157.00.