Last week, all major indices on Wall Street reached record levels as new data from the U.S. economy supported investors’ belief that the Fed will cut interest rates by 0.25 percentage points next week.
On Wall Street, the Dow Jones index strengthened by 1 percent last week, reaching 45,834 points, while the S&P 500 rose by 1.6 percent to 6,584 points, and the Nasdaq increased by 2 percent to 22,141 points.
However, inflation remains significantly above the Fed’s target levels of around 2 percent. Last week, it was reported that retail prices rose by 0.4 percent month-on-month in August, more than expected.
On an annual basis, inflation reached 2.9 percent, the highest level since January, suggesting that tariffs recently imposed by U.S. President Donald Trump have supported inflation growth.
The core inflation rate, which excludes food and energy prices, reached 3.1 percent in August. The rise in inflation leaves little room for the central bank to reduce interest rates.
However, the labor market has been weakening in recent months. Last week, it was reported that the number of unemployment claims rose more than expected in the previous week, reaching 263,000, the highest level in nearly four years.
Due to the weakness in the labor market, investors are convinced that Fed leaders will cut interest rates by 0.25 percentage points at next week’s meeting.
– The inflation report has been overshadowed by unemployment data. Although inflation rose more than expected, it does not give the Fed room to hesitate in cutting rates next week. If nothing else, the rise in unemployment indicates urgency in the Fed’s decision-making, so signals for further rate cuts can be expected next week – says Seema Shah, strategist at Principal Asset Management.
Dollar Weakens for Second Consecutive Week
Due to data on the U.S. labor market and the expected reduction in Fed interest rates, the dollar has been under pressure for weeks. On global markets, the value of the dollar against a basket of currencies slightly fell last week for the second consecutive week, as it becomes increasingly certain that the U.S. central bank will cut interest rates next week.
The dollar index, which shows the value of the U.S. dollar against six major world currencies, weakened by 0.10 percent last week to 97.61 points.
At the same time, the euro strengthened by 0.15 percent to 1.1735 dollars. However, the U.S. currency strengthened against the Japanese yen by 0.15 percent, reaching a price of 147.65 yen.
In Europe, Focus on ECB and France
European stock prices also rose last week. The London FTSE index increased by 0.8 percent to 9,283 points, while the Frankfurt DAX rose by 0.4 percent to 23,698 points, and the Paris CAC increased by nearly 2 percent to 7,825 points.
At the beginning of the week, markets were under pressure due to a political crisis in France as parliament voted no confidence in Prime Minister Francois Bayrou‘s government. However, markets recovered after President Emmanuel Macron appointed Sebastien Lecornu as the new prime minister, the fifth prime minister in less than two years.
