Copy of U.K. CBI Realized Sales, U.S. Home Sales, ECB President Lagarde Speaks

The dollar fluctuated between gains and losses against most major currencies last week, with the dollar index (USDX) ending the week slightly lower despite solid fundamentals from the US and comments from several FOMC members expressing their concerns regarding early rate cuts, requiring more evidence of inflation cooling before easing is considered.

According to the CME Fedwatch tool, the possibility that the first rate cut in 2024 will take place in the May FOMC meeting fell from 22.1% to 21.2%, while the same possibility for a rate hike taking place in June rose from 52.2% to 54%.

Wall Street’s AI driven rally was evident in the past few days as well as all three main stock indices hit new record highs, rising by approximately 1.3% to 1.6% for the week. U.S. inflation will likely remain a key focus for investors this week, particularly when January's personal consumption expenditures price data is released on Thursday.

Several big market players announce their Q4 earnings reports today among which are Playtika, Domino's Pizza unity and Zoom while other key releases in the week ahead include eBay, Virgin Galactic, Best Buy, Dell, Nio, Plug Power, Paramount and Novavax.

On the energy front, the two main crude benchmarks WTI and Brent fell by 3.2% and 1.9% respectively in the last week despite escalating geopolitical tensions in the Middle East, as staggering growth prospects and strength in the dollar seem to be weighing heavily on the energy sector.

Some price action could be observed in the week ahead, upon the release of Japanese inflation numbers and Chinese purchasing managers index data keeping investors on edge, as concerns persist over slowing growth in the region’s largest economies. Another key event taking place during the week is the PCE price index data which is the Fed’s preferred inflation gauge. In addition, several Fed officials are due to speak on the outlook for monetary policy.

"The latest data confirms the ongoing disinflation process and is expected to bring us gradually further down over 2024," ECB President Christine Lagarde told at European Parliament hearing in Brussels.

EUR/USD

The EUR/USD pair ended the session on Friday without any significant changes as markets settled in for the weekend waiting this week's significant data.

Data from the EU revealed that the German economy contracted -0.3% as expected on a quarterly basis in Q4 2023. Annually based, the Gross Domestic Product (GDP) shrank -0.2%. Further data revealed that the business climate in Germany slightly improved from 85.2 to 85.5, according to the Ifo Institute.

This week sees US Gross Domestic Product (GDP) on Wednesday, followed by German Retail Sales and German Consumer Price Index (CPI) figures on Thursday. Thursday also sees US Personal Consumption Expenditure figures (PCE). Pan-European Harmonized Index of Consumer Prices (HICP) rounds out next week alongside US ISM Purchasing Manager Index (PMI) numbers.

Gold

Gold prices were set for a weekly gain on Friday, buoyed by a softer dollar and safe-haven demand from escalating tensions in the Middle East, even as U.S. Federal Reserve officials bruised hopes of early rate cuts this year. Gold prices ended the week with gains over 1% above the level of $2030,00 per ounce.

U.S. Treasury yields also were down for the week, making greenback-priced bullion less expensive to overseas buyers.

Recent data showing higher-than-expected U.S. consumer and producer prices also dashed speculation about an early interest rate cut, further weighing on bullion. Lower interest rates boost the appeal of holding non-yielding bullion.

WTI Oil

Oil prices posted a sharp decline on Friday and ended the week with losses after a U.S. central bank policymaker indicated interest rate cuts could be delayed by at least two more months.

Meanwhile, Gaza truce talks were underway in Paris in what appears to be the most serious push in weeks to halt the conflict in Palestine and see Israeli and foreign hostages released. Still, tensions in the Red Sea continued, with attacks by Iran-backed Houthi militants near Yemen on Thursday forcing more shipping vessels to divert from the trade route.

US 500

U.S. main indexes ended the session on Friday mixed. At the close, the US 30 rose 0.11% to hit a new all-time high, while the US 500 climbed 0.01%, and the US Tech 100 lost 0.31%.

Anticipation of more key inflation readings this week- specifically the PCE price index, which is the Fed’s preferred inflation gauge- also kept traders on edge. U.S. stock markets also appeared vulnerable to some profit-taking after ending the prior week at record highs, particularly the tech sector.

Nvidia had pulled up other Big Tech and growth stocks in previous sessions, as investors traded the AI play. Carvana surged 32.1% on Friday after reporting its first-ever annual profit, helped by its pact with bondholders to cut its outstanding debt by $1 billion. With the fourth quarter earnings season now ending, earnings reports from a string of major retailers are on tap this week.