More likely hiking

The past week has seen a sharp ramp-up in yields across the board, as conflict in the Middle East pushes energy costs to new highs, while hotter-than-expected inflation readings in the US, and market disappointment over the scale of Treasury buybacks, only adds to the upward pressure. But with debasement fears continuing to linger, the dollar is struggling against a backdrop that would ordinarily be seen as constructive. Indeed, as we write late on Friday, the DXY index hovers around 99, having shed several tenths over the course of the week just gone. The euro is similarly little changed, despite an ECB rate hike on Thursday, accompanied by a hawkish tilt in guidance that puts further 2026 tightening firmly in play.

Looking ahead to the new week, central banks are again in focus, with the BoE, BoJ, and the Fed all set to deliver rate decisions. Only the first is projected to remain on hold, with the latter two expected to increase rates by 25bps. That mix should leave the pound vulnerable, though we see upside risks to the yen too, given the BoJ’s tendency to accompany hikes with dovish guidance, and a high bar to match market expectations. But it will be the FOMC’s decision on Wednesday that likely steals the spotlight, especially after August core CPI overshot expectations to rise 0.3% MoM. Assessing that data in the context of recent comments from Warsh and Waller, we have changed our house call and now expect the FOMC to raise rates at this meeting. A surprise hold is still a risk worth watching for; however, given that such a move would further undermine Fed credibility, likely triggering an ugly sell-off for both Treasuries and the dollar on supercharged debasement fears.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

Disclaimer

This information has been prepared by Monex International Markets plc, part of Monex S.A.P.I. de C.V. (“Monex”). The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. All entities in the “Monex” group of companies are regulated for different products and services within the jurisdictions in which they operate. Details of the different entities can be found here. Details of the respective entities’ regulated status and available products and services can then be found on the relevant links to the individual jurisdictions’ website.