Stocks down, dollar steady, US inflation in focus

On Friday, the dollar eased off a two-week high against the euro, and European stock markets are expected to open lower after investors digested the ECB's rate hike guidance ahead of the release of key US inflation data.

The US dollar has been riding rough waters for most of the week, and the vast anticipation ahead of the inflation report could shake things up. The CPI release will likely result in a binary outcome. If inflation exceeds expectations, the Federal Reserve will be forced to tighten even more, which is a bullish sign for the US dollar. In contrast, a weaker reading than expected would ease pressure on the Fed and, as a result, the US dollar would weaken.

US inflation

As for headline CPI, it is anticipated to stay at 8.3% for another month, while core CPI is expected to fall to 5.9% from 6.2%. If the core figure drops, there will be hope for a peak in inflation.

Next week, the Fed is expected to announce the second of its three consecutive 50-basis-point rate hikes, which has recently boosted the dollar. An analyst poll by Reuters showed that two-thirds of respondents expect a 25 basis point increase in September.

Despite the greenback's 0.27% drop to 103.1 this week, the dollar index was still up 0.94%. The gain would be the largest since the last week of April. The index seems to have handled a more determined and hawkish ECB well. They aren't more hawkish than expected, planning to increase rates by 25 basis points in July and September and foreseeing potentially more significant increments.

Oil

This week oil prices were back at 3 months' highs, and agricultural commodities showed no sign of falling either. Investors are quickly redoing their earnings growth estimates and don't like what they see.

Crude prices dropped on Friday but were still within touching distance of three-month highs due to fear of new lockdown measures taken by Shanghai's COVID-19, which outweighed solid fuel demand in the United States, the world's largest consumer.

In the last two months, prices have risen steadily, and Brent was on pace for a fourth-consecutive weekly gain, while WTI was set to post its seventh straight weekly gain. It was the biggest settlement in 14 years for both benchmarks on Wednesday, the highest close since March 8.