The analysis notes that the recent short‑covering rally in the yen appears to be driven by large institutional positioning rather than direct central‑bank intervention. After previous interventions in April/May and late July, the dollar has held the 155‑yen level three times, suggesting a firm support zone.
Oil prices continued their upward trajectory, with October crude gaining 9.2% to close above $90 a barrel and November contracts up 8.5% above $95. Despite the commodity rally, benchmark 10‑year U.S. Treasury yields remained stable, moving within a 1.5‑2 basis‑point band around G7 levels.
In the euro area, the analysis expects the European Central Bank to deliver a 25‑basis‑point rate hike at its September 10 meeting, raising the deposit rate to 2.50%. Market pricing implies a greater than 70% probability of an additional hike in the first quarter of 2027. The euro has largely traded in a narrow range of $1.1580‑$1.1660 since late August, with a low near $1.1565, reflecting resilience despite strong U.S. jobs data.
The German state election in Saxony‑Anhalt could see the far‑right AfD secure a governing majority, a scenario that may reverberate through German politics and affect euro sentiment. The analysis links this political risk to the broader euro outlook.
On the U.S. side, the key data point is the August Consumer Price Index due later in the week. A modest 0.2% month‑over‑month increase would bring the year‑over‑year CPI to 3.3%, down from 4.2% in May, while core CPI could slip to 2.4%, the lowest level in over five years. Fed funds futures currently price about 15 basis points of tightening for the month, with roughly 14 basis points already priced in after the Federal Reserve Chair’s remarks at Jackson Hole.
The Dollar Index (DXY) reached a two‑and‑half‑week high of 99.85 early last week but fell to a weekly low of about 98.85 after a sharp short squeeze. It struggled to break the Thursday high of 99.60, suggesting a likely consolidation phase ahead of the ECB meeting and U.S. CPI release.
In China, the renminbi (CNH) slipped to near 6.7050 per dollar, its lowest level since January 2023. Bloomberg’s survey median projects the CNH to finish the year around 6.70 per dollar, a forecast the analysis deems conservative.
Overall, the analysis projects that the interplay of the ECB’s expected hike, U.S. inflation data and the USD/JPY short‑covering dynamics will dominate market direction in the coming week.
