Weekly Market Review

Weekly Market Review

USD

The dollar attempted to regain strength but struggled despite strong fundamentals like monetary policy. The DXY climbed from 106.5 to 107.3 early in the week but lost nearly all its gains by the end.

Shifting rate expectations worked against it, with markets lowering the chances of the Fed holding rates steady until year-end from 22.5% to 16%. Meanwhile, the probability of two or more rate cuts rose to nearly 50% from under 40% the previous week.

With no major new data, markets focused on the softer stance of other major central banks. However, dollar weakness masked broader struggles in other currencies.

AUD

Australia made its first rate cut of the cycle this week, cutting the rate by a quarter point to 4.1%. The previous cut was in November 2020, and the rate hike cycle started in May 2022. However, accompanying comments from the RBA indicate heightened concern for further moves.

The Australian Central Bank's unwillingness to fully engage in policy easing has allowed the Aussie Dollar to return to its past two-month highs, forming a smooth reversal from the bottom.

GBP

UK consumer inflation rose to 3%, surpassing expectations and staying above the 2% target for over 40 months. Producer prices are virtually unchanged year-on-year and are not a major contributor to final inflation.

However, the initial market reaction was a sell-off in the Pound due to fears that it was losing its purchasing power, as the latest inflation figures would not stop the Bank of England from further easing.

Indices

This week, the S&P 500 and Nasdaq 100 reached new all-time highs. While the Nasdaq 100 continued to push higher after a strong start following the long weekend, the Dow Jones and S&P 500 traded within a narrowing range. This pattern suggests the need for close monitoring, as the market remains vulnerable to a potential pullback.

The U.S. market is now being driven by neutral sentiment. The corresponding index from CNN Business has climbed to 48, maintaining the upward trend since January 13th, when sentiment pushed back from the fear area at 27.

European indices, which have overtaken their U.S. counterparts in gains since the start of the year, experienced a bout of profit-taking this week. The DAX index, which has added 14% since the start of the year, corrected 2% from its peak, but buyers once again dominated the market on Thursday.

Gold

So far this year, gold has made ten new all-time highs, climbing above $2950 per ounce and gaining 12.5% YTD. In terms of gains since October 2023, when the momentum started, gold is competing with European indices, gaining 63% versus just under 60% for the DAX40.

This is the eighth nonstop week of gold's rally after consolidating late last year. While retail short-term speculators look forward to a test of the all-important $3000 ground level, we are reminded of the higher technical potential up to $3400.

What’s next

Germany goes to the polls this coming weekend, the results of which could trigger gaps and volatility in European assets and the Euro at the start of trading in the new week. All eyes are on the performance of the right-wing party and their subsequent statements if they win.

Also, the Ifo business valuation indicator for Germany will be published on Monday. The current conditions have improved slightly in the previous months. Confirmation of this trend will benefit the single currency.

On Friday, the Fed's preferred measure of inflation, US consumer spending data and personal consumption price indexes will be released. An acceleration could bring back interest in the dollar, strengthening the position of Fed hawks.

By the FxPro Analyst Team