The central bank week concluded without any major surprises, as the Reserve Bank of Australia increased rates as anticipated, while other central banks maintained their current policies. However, markets are now anticipating rate hikes in 2026 due to rising oil prices and their expected inflationary impact. Attention remains focused on the ongoing conflict in Iran, with frequent developments creating significant risk-aversion in the markets.
The US Dollar reversed some of its recent gains despite the positive US economic data last week. The Federal Reserve kept rates unchanged with only one dissent, leading the DXY index to close the week 1% lower at 99.503.
The Euro had a positive week as markets now anticipate nearly three rate hikes by the European Central Bank in 2026, with rates remaining unchanged for now.
The Bank of England also maintained its current rate, but signals suggest that the next move might be a hike rather than a cut. The British Pound edged higher last week, and the 10-year Gilt yield reached 5%, raising concerns about the UK’s debt levels.
Commodity currencies are still trying to determine whether they will be correlated with risk assets or commodity prices. Last week was a positive one for these currencies, even as equity markets fell across the board. The CAD was flat, the AUD gained 0.5%, the NZD gained 1%, while the NOK rallied over 2% against the Dollar. Elsewhere in FX, the CHF, and JPY all posted marginal gains.
Oil remains highly volatile, at the mercy of every new Iran-related headline. Prolonged high oil prices are a great danger to the global economy, and markets are fully aware of that. Last week the WTI fell 1.2% to close at $98.11.
Precious metals remain the weakest asset class, as they were destroyed once again. This feels like the last of the leveraged longs stopping out, and we are possibly very close to a long-term bottom; however, it’s always dangerous and tricky trying to pick a bottom. Last week, gold fell over 10% to $4,498, marking its worst weekly performance in many decades. Silver had an even worse performance, with a 15% crash to $67.91.
Bonds continue to face pressure, largely because central banks are anticipated to begin raising rates in response to escalating oil prices. The 10-year U.S. Treasury yield increased by 10 basis points, closing at 4.38%, while the 10-year Bund decreased by 0.6%, settling at 125.37.
Equities maintained their downward trajectory, reflecting significant apprehension over the ongoing conflict in Iran. As long as this situation persists, expectations for a meaningful market rebound remain low. Last week, the S&P 500 index dipped below the critical 6515 support level but recovered just before the market closed, ultimately ending the week 1.6% lower at 6525. The DAX fared significantly worse, plummeting 4.5% to 22370 points.
Meanwhile, cryptocurrencies are defying expectations by performing relatively well, despite traditional safe-haven assets like bonds and gold being sold off. Currently, Bitcoin is slightly down at $69,000, while Ethereum is slightly up at $2,100.
