Another busy week saw the US CPI surprise to the upside, confirming that inflation remains stubbornly sticky. The US Dollar and yields rose as a result, and the week closed with risk-off and precious metals spiking higher due to fears of an Iran-Israel escalation.

The general risk-off sentiment and the US CPI print supported the US Dollar. The DXY index is making new 2024 highs, closing the week 1.7% higher at 106.013.

The Euro remains on the back foot as Eurozone economic data keeps coming in soft, and the ECB left rates unchanged with more dovish talk.

Sterling also had a quiet week, losing ground against the USD but moving broadly sideways against other majors.

Commodity currencies were hit from three directions: a rising dollar, falling oil, and the general risk-off move. Last week, the AUD, NZD, and CAD all fell around 1.5% against the Dollar, and they continue to trade heavily. It was a similar story elsewhere in FX, with the CHF and JPY all dropping just over 1% against the greenback.

Oil traded lower throughout the week, but the Iran-Israel escalation is bound to bring elevated volatility in the days ahead. Last week, the WTI fell 1.5% to close at $85.41.

Precious Metals had a rollercoaster week! US debt worries have been lifting metals higher in recent weeks, which was the past week’s main theme. However, rumours of Iran-Israel escalation on Friday saw Gold break above $2400 and Silver almost reach $30 in a panic move. However, this move quickly faded, and metals closed the day deeply in the red. In the end, gold closed the week at only 0.6% higher at $2,344, and silver went up 1.4% at $27.89.

Equities moved lower again, pressured by rising yields and global geopolitical fears. Last week, the S&P500 fell 1.5% to close at 5130 points, and the DAX slid 1.3% to 17930.

Following the US CPI print, bonds were hit, which removed yet more Fed cuts from 2024. Last week, the 10-year UST yield rose 13bps to close at 4.53%, and the 10-year Bund was broadly unchanged at 132.483.

Finally, crypto-currencies are retreating further from their recent all-time highs, confirming their risk-off proxy status. At the time of writing, Bitcoin is down over 7% at $64,500, but we are nearing the 60-61k area, which could be an excellent accumulation level. Ethereum is currently down nearly 10% at $3,070, and technically, it looks weaker than Bitcoin.

The Week Ahead:

The Iran-Israel weekend escalation should dominate the coming week’s markets. Will the situation escalate with US involvement, or will this incident be over quickly? Data-wise, we have inflation prints from Japan, the Eurozone, the UK, New Zealand, and Canada, as well as important employment data from the UK and Australia.

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