Global financial markets came under pressure as rising energy prices, concerns over artificial intelligence (AI) investment, and uncertainty surrounding the interest rate outlook weighed on investor sentiment. In the bond market, the yield on the benchmark 10-year US Treasury rebounded by more than four basis points on Friday to approximately 4.999%. The yield had fallen below 5% on Thursday for the first time in a month, as concerns over the scale of financing required for AI infrastructure fuelled safe-haven demand.

All three major US stock indices closed lower, with the Dow Jones Industrial Average shedding more than 650 points. Spot gold fell below $4,000 per ounce, bringing its weekly decline to approximately 4%, while WTI crude oil climbed above $100 per barrel, recording its highest closing level in nearly six months. With interest rate decisions from the Federal Reserve, European Central Bank (ECB), and Bank of Japan (BoJ) approaching next week, investors are reassessing the balance between persistent inflationary pressures and economic growth.

The latest market volatility has highlighted the increasingly interconnected nature of global asset classes. Escalating tensions in the Middle East have driven oil prices higher, reinforcing expectations that major central banks may need to keep interest rates elevated or tighten monetary policy further. Meanwhile, the sharp correction in technology stocks has prompted some investors to raise liquidity, adding selling pressure to assets such as gold. Elsewhere, concerns surrounding France's bond market have weighed on the euro, while the Japanese yen has benefited from safe-haven inflows.

The Federal Reserve, ECB, and BoJ are all scheduled to announce their monetary policy decisions next week. Markets broadly expect all three central banks to leave interest rates unchanged, although investors will closely scrutinise their statements for clues about the future path of monetary tightening.

For global markets, the key question is not simply whether central banks hold rates steady, but how policymakers assess the persistence of the energy-driven inflation shock. If inflationary pressures force interest rates to remain elevated for longer, equity valuations, the opportunity cost of holding gold, and financing conditions for risk assets could face further pressure.

Review of Last Week's Market Performance
The S&P 500 declined 0.2%, while the Dow Jones Industrial Average lost nearly 550 points. The Nasdaq fluctuated between modest gains and losses following the previous session's sharp sell-off. For the week, the S&P 500 was little changed, while the Nasdaq Composite fell 0.5%. In contrast, the Dow was on track to post a weekly gain of approximately 1.7%.

Gold prices fell below $4,000 per ounce on Friday, reaching their lowest level since mid-July and extending their weekly decline to nearly 4%. Rising oil prices have reinforced expectations that US interest rates will remain higher for longer. Investors are now awaiting the US Personal Consumption Expenditures (PCE) Price Index, scheduled for release on October 29, for further evidence of progress towards the Federal Reserve's 2% inflation target.

Silver also came under significant selling pressure, falling below $54 per ounce on Friday to its lowest level since November 2025. Rising crude oil prices have strengthened expectations that US interest rates will remain elevated for an extended period. Markets currently assign only a 10% probability to a rate hike next week, compared with an 80% probability of an increase in December. Investors will also closely monitor the October 29 PCE inflation report for further insight into whether inflation is moving sustainably towards the Fed's 2% target.

The US Dollar Index was broadly unchanged on Friday, hovering near a three-week low and heading for a weekly decline of almost 0.2%. Investor sentiment remained cautious as oil prices continued to rise and concerns grew over a potential escalation of hostilities in the Middle East. Among major currencies, the Japanese yen strengthened against the dollar, supported by its traditional safe-haven appeal. The euro, meanwhile, edged lower as political uncertainty in France and persistent selling pressure in the country's bond market weighed on the single currency.

EUR/USD: The euro surrendered its earlier gains and retreated towards 1.1200 as renewed US dollar strength put the pair under pressure. Stronger-than-expected preliminary US business activity data provided additional support for the greenback, keeping EUR/USD on the defensive.

USD/JPY: The pair rebounded from around 156.00, recovering from a one-month low reached during Friday's Asian session. Buyers are now looking to extend the recovery beyond 157.00 amid renewed US dollar demand. However, Japan's nationwide CPI climbed to a nine-month high, reinforcing expectations of further Bank of Japan rate hikes. This could continue to support the yen and limit the pair's upside potential.

GBP/USD: Sterling gave back some of its recent gains on Friday, ending a three-session winning streak as improving sentiment towards the US dollar pushed the pair back into the 1.3370–1.3380 range. Mixed UK economic data also weighed on the pound, keeping GBP/USD's near-term price action subdued.

AUD/USD: The Australian dollar held firmly above 0.7000 on Friday, trading not far below the previous session's monthly low as competing market forces influenced the pair. The Reserve Bank of Australia's hawkish stance continued to support the Aussie, while the recent decline in US Treasury yields kept the dollar under pressure near a three-week low. Nevertheless, renewed inflation concerns driven by rising oil prices have strengthened expectations of further Fed tightening. Combined with geopolitical uncertainty, these factors could support safe-haven demand for the US dollar and limit further gains in AUD/USD.

WTI Crude Oil: Oil prices climbed above $103 per barrel on Friday amid speculation that the United States could resume military strikes against Iran in the coming weeks. On Wednesday, US President Donald Trump stated that Washington was not engaged in negotiations with Tehran and suggested that something would happen "soon." Crude oil gained more than 3.5% over the week.

Cryptocurrencies: Cryptocurrency markets broadly advanced last week, led by Bitcoin (BTC), which is approaching immediate resistance at $82,000. The path of least resistance appears to remain to the upside, supported by a solid underlying technical structure. A daily close above $82,000 would strengthen the near-term bullish outlook, increasing the likelihood of a recovery towards $84,000 in the short term and potentially $87,000 over the medium term.

US Treasury Yields: The benchmark 10-year US Treasury yield climbed back towards 5% on Friday, following a 17-basis-point decline in the previous session, its largest single-day drop in more than a year. Despite the modest rebound in yields, market sentiment remained cautious. Meanwhile, traders are pricing in approximately a 76% probability of a 25-basis-point rate hike in December.

Market Outlook for the Week Ahead
During the week of October 26–30, investors will closely monitor developments in the Middle East, particularly the possibility of further disruptions to global oil supplies. The corporate earnings calendar will also be exceptionally busy, with major technology companies and hyperscale cloud providers, including Microsoft, Alphabet, and Amazon, scheduled to report their results.

Monetary policy will remain a major focus, with interest rate decisions expected from the Federal Reserve, European Central Bank, Bank of Japan, Bank of Canada, Bank of Thailand, and Reserve Bank of New Zealand.

On the economic front, preliminary GDP figures from the United States and the eurozone will be closely watched, alongside the US PCE inflation report and preliminary inflation readings from major European economies, including Germany. Investors will also assess Tokyo's latest inflation figures and Australia's Consumer Price Index (CPI) data.

Political developments are likely to attract significant attention as well, including the UK's Autumn Budget, the Fifth Plenary Session of the Communist Party of China's Central Committee, and elections in Brazil and Israel.

Conclusion
Global financial markets are currently being driven by three major themes: potential turning points in central bank monetary policy, energy-driven inflation, and expectations surrounding technology sector earnings. This week's concentration of central bank decisions, inflation releases, corporate earnings, and political developments will test prevailing market expectations and could significantly influence the near-term direction of the US dollar, major currency pairs, US Treasury bonds, US equities, and precious metals.

Several competing forces are shaping the current market environment. Persistently elevated oil prices continue to fuel imported inflation worldwide, squeezing corporate profit margins while limiting central banks' flexibility to ease monetary policy. At the same time, unresolved geopolitical tensions in the Middle East, ongoing friction between the United States and Iran, and the Russia–Ukraine conflict leave energy markets vulnerable to renewed risk premiums and sudden price fluctuations.

Beneath the surface, the structure of the US equity market has weakened noticeably, while signs of slowing capital expenditure in the AI sector have added another layer of uncertainty to the outlook for technology stocks.

Israel is scheduled to hold its general election on October 27, with the outcome potentially shaping the country's future Middle East policy and influencing oil prices as well as expectations surrounding US–Iran negotiations.

With the US midterm elections approaching and oil prices remaining elevated, markets are also increasingly sensitive to potential White House intervention in energy markets. Any new developments involving US–Iran peace talks, Russia–Ukraine negotiations, or measures aimed at containing oil prices could trigger significant volatility across global financial markets.

*General Advice only