The U.S. dollar came under pressure during today’s session after a series of economic releases reshaped market expectations for the path of U.S. interest rates. The Dollar Index fell 0.3% to 99.67, although it remained around 0.1% higher for the week, putting it on course to end a two week losing streak. The move reflected a balance between two opposing forces. Weaker U.S. data reduced expectations for another rate increase, while escalating tensions in the Middle East and higher oil prices supported demand for safe haven assets.
Recent U.S. economic data provided clearer signs of slowing activity. Inflation figures showed easing price pressures in July, while retail sales declined 0.6% on a monthly basis compared with expectations for a 0.1% increase. Core retail sales also fell 0.3%. Combined with weaker labor market data from the previous week, these figures encouraged markets to scale back expectations for additional monetary tightening by the Federal Reserve, a shift that was reflected in pricing for the September meeting.
According to the CME FedWatch tool, the probability of the Federal Reserve leaving interest rates unchanged in September rose to around 67% from 56% a week earlier, while the probability of a 25 basis point rate increase dropped to roughly 33%. This shift weighed on U.S. Treasury yields during the middle of the week, particularly at the shorter end of the curve, which is more sensitive to monetary policy expectations, before yields recovered some ground by the end of Friday’s session.
In contrast, rising oil prices provided some support for the dollar by increasing demand for defensive assets. Brent crude climbed to $88.52 a barrel, recording a weekly gain of around 4.5%, as tensions between Washington and Tehran over the Strait of Hormuz remained unresolved. Continued disruption to shipping activity and reduced tanker traffic through the region kept supply concerns firmly in focus, particularly as tensions extended to the Bab el Mandeb Strait.
The Japanese yen strengthened during Friday’s session but was still heading for a weekly loss of close to 1% against the dollar. This performance highlighted the limited impact of the previous intervention in the foreign exchange market, which failed to produce a lasting change in the currency’s direction. Lower expectations for a U.S. rate increase were also insufficient to support the yen as strongly as markets might have expected, renewing debate over whether the Bank of Japan needs broader monetary policy adjustments rather than relying mainly on direct market intervention. At the same time, both the euro and sterling maintained modest weekly gains as upward momentum in the dollar continued to fade.
Wall Street’s second quarter earnings season delivered exceptional figures in terms of revenue and profit growth, although strong corporate performance did not always translate into higher share prices. FactSet data indicate that revenue growth among S&P 500 companies is on track to record its strongest pace since the fourth quarter of 2021, led by the energy, technology and communication services sectors. Barclays data also showed that 85% of companies exceeded market expectations, compared with a historical average of 76%, while earnings surprises reached around 30.7% compared with a long term average of 5.2%.
The energy sector was among the biggest beneficiaries of higher oil prices, a trend clearly reflected in the results of ExxonMobil and Chevron. Exxon reported profits of $14.5 billion, more than double the level recorded a year earlier, while Chevron posted record profits of $12.1 billion. These figures highlighted the strength of cash generation across the sector in an environment of elevated energy prices.
The picture in the equity market, however, has become more complicated. Strong earnings alone are no longer enough to drive share prices higher, as investors increasingly expect companies not only to beat forecasts but also to provide stronger guidance for future periods. Barclays noted that some stocks declined during the second quarter earnings season even after reporting results above analysts’ expectations, reflecting elevated valuations and crowded investor positioning, particularly in companies linked to artificial intelligence.
Capital spending on artificial intelligence became one of the most closely watched areas of the earnings season. Tesla, Alphabet and Meta faced pressure after revealing plans for heavy spending on artificial intelligence infrastructure, while Microsoft received a more favorable market response after maintaining its capital expenditure outlook without announcing further increases. This shift suggests that investors are moving beyond focusing simply on the scale of artificial intelligence investment and are paying closer attention to whether companies can convert that spending into measurable revenue and profitability.
Options market activity also points to increasingly elevated expectations, particularly in the technology and utilities sectors. Expected share price moves ahead of earnings releases were generally larger than the actual moves recorded after results were published. As the earnings season approaches its final stages, attention will turn to upcoming results from Walmart and Nvidia over the next two weeks. Nvidia’s earnings, capital spending outlook and guidance on demand for artificial intelligence infrastructure could have a significant impact on sentiment across the technology sector and the broader U.S. equity market.
You can now benefit from LDN company’s services through the LDN Global Markets trading platform.
