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18/09/2023 - 07:48 UTCThe U.S. dollar showed little to no change on Friday’s session, with the dollar index (USDX) up by 0.24% for the whole of last week, hitting six-month highs close to 105.3.In the spotlight for this week will be Wednesday’s FOMC statement, where the Fed is widely expected to announce a pause to its series of interest rate increases. That said, with U.S. consumer inflation rising by 0.6% on a monthly basis last month, the largest gain since June 2022, the Fed could retain its hawkish outlook.
On the European front, following the latest rate hike, stocks markets are starting to show some recovery on hopes that the ECB is nearly done raising interest rates. Some key policy makers are scheduled to speak Monday, and their comments will be closely watched for the extent of the dissent from the more hawkish members of the group.
Energy prices surged last week, with both Brent and WTI up by more than 4% possibly supported by news of more stimulus measures as well as solid data from major importer China which created a positive global demand outlook. In addition, a widening supply deficit after Saudi Arabia and Russia extended cuts also seems to be providing some boost to prices.
Wall street gave away some of its recent gains on Friday, with all the main US stock indices closing in the red and specifically, the US 500 was down by 1.31%, the US tech 100 fell by a sharp 1.82%, and the US 30 dropped by 1%. Part of the move could be attributed to the fact that a strong inflation reading raised concerns that the Fed will maintain its hawkish stance for longer and some investors remain on the sidelines ahead of the Fed policy meeting.
Some more key releases are up ahead this week, such as the preliminary building permits and housing starts, the Philadelphia Fed manufacturing index, existing home sales and the S&P Global services PMI as well as a speech from Fed Governor Cook.
The EUR/USD pair recovered some of its recent losses on Friday ending the session 0.23% higher but this was not enough to rebound the weekly losses for an eight consecutive week.
On Friday, the Federal Reserve Bank of New York reported that the Empire State Manufacturing Index in August improved to 1.9 from -19 in the previous reading. Additionally, Industrial Production rose by 0.4% MoM from July’s reading of 1% and beat the market expectation.
On the Euro docket, ECB President Lagarde stated on Friday that the potential of further rate cuts was not considered among policymakers. She added that the ECB would maintain interest rates high for a long period and might raise them again if necessary.
Looking ahead, the Federal Reserve monetary policy meeting on Wednesday will be a closely watched event.
Gold prices gained 0.66% on Friday, driven by a weaker dollar and safe-haven buying after United Auto Workers union kicked off strikes at three automakers in Detroit, while hopes around a likely pause in U.S. interest-rate hikes lent further support.
The dollar slipped 0.2% against its rivals following U.S Data earlier in the day, making gold less expensive for other currency holders. Market participants now look forward to more clarity on interest rate outlook from the U.S. Federal Reserve at their policy meeting next week, in which the central bank is widely expected to leave interest rates unchanged.
Oil prices hit a 10-month high on Friday and posted a third weekly gain as supply tightness spearheaded by Saudi Arabian production cuts combined with optimism around Chinese demand to lift crude.
Supply concerns continue to be a driving force for prices since Saudi Arabia and Russia this month announced an extension of their combined supply cuts of 1.3 million barrels per day to the end of this year. Better-than-expected industrial output and retail sales data in China have also boosted oil prices the last week.
U.S. stocks ended sharply lower on Friday as chipmakers dropped on concerns about weak consumer demand, while rising Treasury yields pressured Amazon and other megacap growth companies. Market participants also responded to the news of a strike by the United Auto Workers against leading automakers. The US 500 and US 30 ended the day 1.31% and 1.00% lower respectively, while US Tech 100 posted losses of 1.82%. Market’s reaction also reflected the anticipation of the Federal Reserve's decision due next week.
Investors are turning their attention to this week's Fed policy-setting meeting, looking for clues to help clarify the policy path ahead for both Fed officials and markets alike.
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