Weekly Analysis

Financial markets entered the week cautiously as investors prepared for monetary policy decisions from the Federal Reserve, European Central Bank, and Bank of Japan. The Dollar Index eased toward 101.6, while Treasury yields continued to retreat from recent highs. All three central banks are expected to leave rates unchanged this week, although persistent inflation and elevated energy prices have kept expectations for further tightening alive. Attention is also turning to US GDP, PCE inflation, and major technology earnings for fresh signals on economic growth.

Financial markets entered the week balancing persistent US inflation against growing concerns over equity valuations and artificial intelligence spending. The Dollar Index slipped to 101.6, recording its first weekly decline in four weeks, while safe-haven demand supported government bonds and precious metals. Despite stronger consumer and producer inflation, markets now assign an 85% probability to the Federal Reserve holding rates in October, with a 77% chance of another increase in December.

The dollar held firm heading into the new week as investors awaited key US inflation figures to guide Federal Reserve policy. The Dollar Index held above 102 after four consecutive weekly gains, while the euro and yen remained under pressure from wide interest rate differentials and persistent fiscal concerns. September’s consumer and producer inflation reports will be closely watched as markets assess whether the Fed has room to pause its tightening cycle.

Weak US labor market data shifted the monetary policy outlook after September nonfarm payrolls rose by only 29,000, well below the 90,000 forecast, while prior months were revised lower. Unemployment rose to 4.2%, and wage growth slowed to 3.0%, cutting the probability of an October Fed hike to around 20%. The Dollar Index fell below 102 after the report, but remained on course for a third consecutive weekly gain.

The week started with renewed pressure from rising oil prices and expectations for further monetary tightening. The Dollar Index climbed toward 101.1, near a two-month high, as several Federal Reserve officials cited resilient economic growth, a strong labor market, and persistent inflation risks as reasons to hike rates further. Markets now price in roughly a 66% chance of another Fed hike in October, while the US 10-year Treasury yield has climbed to its highest level since 2007.

Global markets entered the week balancing tighter monetary policy against signs of easing Middle East energy risks. The Federal Reserve remains the main macro driver after raising rates to 3.75%–4.00%, its first hike since 2023, and signaling that another increase remains possible this year. The Dollar Index advanced to 100.4, while Treasury yields remained elevated. The Bank of Japan also tightened policy, raising rates to 1.25%, although dissent within the board suggested that future increases could come at a slower pace.

The week began with markets focused on Wednesday’s Federal Reserve decision after hotter US inflation data strengthened expectations for another rate hike. August CPI remained at 3.4% year-on-year, but the monthly increase accelerated to 0.4%, its strongest in three months, while producer prices also picked up. Markets now assign roughly an 86% probability to a 25-basis-point Fed hike, supporting the dollar and pushing Treasury yields higher.

Global markets entered the week with renewed expectations for Federal Reserve tightening after a surprisingly strong US employment report. Nonfarm payrolls increased by 162,000 in August, nearly three times the 56,000 forecast, while unemployment remained at 4.1%. The Dollar Index recovered to 99.3 and Treasury yields moved higher as markets raised the probability of a September Fed hike to nearly 60%.