Last week, the conflict in Iran intensified, leading to a surge in oil prices. Despite this, consumer price index (CPI) figures are beginning to come in lower than anticipated, as seen in the UK and Canada, yet this hasn’t stopped yields from reaching new highs, putting pressure on risk assets. In the foreign exchange market, the Japanese Yen continued to lose value, hitting new multi-year lows.
The US Dollar strengthened as US yields increased and uncertainty over Iran persisted, with the DXY index climbing 0.7% to 101.465, although it remains in a sideways consolidation over a longer period.
The Euro and the British Pound remained relatively stable. The European Central Bank (ECB) kept rates unchanged as expected, while UK earnings and CPI data slightly missed expectations.
Commodity-linked currencies had a mixed week despite the oil rally; the Australian Dollar was unchanged, while the Canadian and New Zealand Dollars fell by 0.5% and 0.9% respectively, and the Norwegian Krone rose 0.6% against the Dollar. Elsewhere in FX, the Swiss Franc and the Japanese Yen each declined by about 1%.
Oil continued to rise in reaction to the Iran situation, with West Texas Intermediate (WTI) climbing over 10% to close at $90.46.
Precious metals finally halted their decline and posted gains for the week, leaving markets to speculate whether this could signify a medium-term bottom, though it remains uncertain. Gold increased by 1% to end at $4,053, and Silver rose 4% to $58.20.
Bonds are struggling to maintain gains amid the oil surge and related concerns over potential rate hikes. The 10-year German Bund fell 0.3% to 124.407, while the 10-year US Treasury yield increased by 13 basis points to close at 4.68%.
Equities were shaken by the Iran conflict, with signs of weakness in the Tech/AI sector, although major stock indices are still showing resilience given the global tensions. The S&P 500 index dropped 0.6% to 7404, while the DAX rose 1.1% to close at 25099.
Meanwhile, cryptocurrencies showed solid performance for the second consecutive week, again outperforming stock indices. At the time of writing, Bitcoin is up 0.6% at $64,300, and Ethereum has risen 2% to $1,880.
Looking ahead, any progress in the Iran situation next week could calm the markets and potentially lower oil and inflation expectations. On the data front, we have the UK interest rate decision and a slew of data from the US, including GDP, Core PCE, and the Federal Reserve’s rate decision.
