Another busy week has come and gone, and for once, the spotlight wasn’t solely on Iran! President Trump has already mentioned that a Memorandum of Understanding is nearing completion, but we are still waiting for a fully confirmed, official agreement from both parties.
This week, however, the focus was on the Federal Reserve and its new chairman, Kevin Warsh. In his debut meeting as chairman, Warsh adopted a notably hawkish stance, showing a clear interest in modernising the Federal Reserve and altering its operational methods. Is this merely rhetoric, or will he truly implement change?
The US Dollar experienced strong buying pressure as Warsh’s hawkish comments increased expectations for rate hikes. Consequently, the DXY index finished the week 1% higher at 100.761.
The Euro declined against the Dollar but showed minimal movement against other currencies, closing 0.8% lower at 1.1471 in the EURUSD pair.
Meanwhile, the Pound experienced slight declines against most major currencies. The Bank of England’s decision to keep rates unchanged was supported by a 7-2 vote, yet calls for a rate hike are growing.
Commodity-linked currencies declined significantly as the Dollar strengthened and commodities sold off. The Australian Dollar fell by 0.4%, while the NZD, CAD, and NOK each dropped around 1.5% against the US Dollar. In other currency movements, the MXN fell 0.5%, the JPY dropped 0.7%, and the CHF decreased by 1.3%.
Oil prices continued to decline sharply amid signs that the conflict in Iran may be nearing resolution. Last week, WTI rose nearly 10% to close at $76.55.
Precious metals are under intense pressure due to the prospect of higher yields and a stronger Dollar, which pose short-term challenges. Gold decreased by 1.5% to $4,155, while Silver plummeted nearly 5% to $64.88.
Despite Warsh’s hawkish stance, bonds performed surprisingly well. The 10-year U.S. Treasury yield fell by 2 basis points to 4.46%, while the 10-year Bund remained flat at 126.
Equities continued their upward momentum, bolstered by tech/AI stocks and the eagerly anticipated SpaceX IPO. The S&P 500 closed the week 0.8% higher at 7,488, and the DAX rose by 1.4% to 24,985.
Meanwhile, cryptocurrencies continue to exhibit more erratic behaviour than other risk assets. At the time of writing, Bitcoin is stable at $63,600, while Ethereum has increased by 3% to $1,720.
Looking ahead, the upcoming week is packed with data releases, including a range of PMIs, followed by U.S. GDP and Core PCE figures. Additionally, we will monitor any further developments from Iran, as they could sway market direction.
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