• Mediators push to break US-Iran deadlock, crude oil slides
• Fed’s Williams sees no need for urgency after September rate hike
• 30-year US Treasury bond yield scales to highest level since 2002
• US looking to Europe to release diesel from strategic reserves

FX Analysis

USD broke higher out of its bullish consolidation we highlighted yesterday, though gave back some gains late in the session after the Fed’s Williams’ dovish comments. He hinted the Fed can wait for another hike and is data dependent. The 2026 top from June sits at 101.80. This move north came as oil prices eased and economic data printed softer than expected. US job openings (JOLTs) fell by 146k below expectations, pointing to softer demand for workers. That said, layoffs remained little changed and hiring held steady suggesting a cooling jobs market without big job losses. September US consumer confidence printed well below estimates and through Liberation Day and pandemic lows. Odds of an October rate hike fell sharply from 70% to 50%. Focus is next on today’s Core PCE data.  

EUR broke down and looks to be heading to the 2026 low at 1.1324, with little major support below. ECB President Lagarde’s dovish comments to kick off the week haven’t helped the single currency. She stressed a measured response from the ECB given no evidence of second round effects. Spanish CPI came in hotter than expected at 4.9% y/y versus 4.7%, with core rising to 3.1% from 2.9%.

GBP was mid-pack among its peers as cable made a fresh cycle low at 1.3202 but retraced those lows late on in the day. Gilt markets were little moved after PM Burnham promised to change the pensions triple lock to fund social care. There are doubts about any change scheduled for 2030, that is four years and a general election away. Options for a better long-term relationship with the EU also seem some way off.

JPY outperformed as the strong threat from interventions remained high. And this isn’t just from Japan, but seemingly also from the US. This is after the two countries reaffirmed their intention to strengthen cooperation to address yen weakness. That could come in other ways like faster rate hikes. The chance of a back-to-back to rate rise sits around 30%.

AUD underperformed at the RBA hiked rates as expected and kept open the chance of more policy tightening. But Governor Bullock struck a more dovish tone in her press conference saying the Board considered a pause and that further hikes may not be needed if inflation comes down. She hoped that four hikes this year would be restrictive enough to slow price pressures.

Stock Market Analysis

US stocks: The S&P 500 was down 0.17% at 7,671. The Nasdaq closed higher by 0.21% at 30,339. The Dow Jones settled off by 0.26% at 5`1,355.  Sectors were mixed with Utilities, Communication Services and Industrials in the green. Energy, Materials and Consumer Staples were the laggard sectors. Carnival jumped 14% after it posted better than expected Q3 earnings. In a challenging environment, the cruise ship operator continued to deliver growth and higher yields. Oracle climbed 4.3% on OpenAI reporting annual recurring close to $70bn amid growing enterprise sales which have more than doubled since July.

Asian Stocks: Futures are mixed. APAC stocks were muted after weakness Stateside on elevated bond yields and oi prices. The ASX 200 was rangebound with modest strength in mining and materials amid the RBA hike. The Nikkei 225 underperformed and tested 65,000 on weakness in power related stocks. The Hang Seng and Shanghai Comp were mixed amid pressure on autos and Shein. The fast fashion retailer plunged 14% and hit record lows after a 67% fall in quarterly profits.

Gold & Silver Analysis

Gold rebounded after its sharp fall to a seven-week low to start a busy week. Inflation concerns are front and centre, and with them rising Fed rate hike expectations. There’s also been some selling out of China ahead of the Golden Week holiday starting on Thursday. Silver bounced modestly after its strong sell-off on Monday. It still looks to be heading towards big support around $56.

Day Ahead – US Core PCE, Australia CPI

Consensus forecasts +0.3% m/m and +3.5% y/y for the headline PCE price index in August. For the core PCE price index, analysts estimate +0.3% m/m. This is the Fed’s favoured inflation metric. The more important development will potentially be annual revisions. These revisions are expected to lower core PCE inflation by roughly 30bps, leaving core PCE around 3.1% y/y in August. While still stronger than other underlying inflation measures, revisions could leave inflation running below the Fed’s latest projections.

Australia August monthly headline CPI is predicted to rise 0.5% m/m and 4.1% y/y from 3.5%. The trimmed mean is expected to rise 0.2% m/m, lifting the annual pace to 3.6%. Risks remain tilted to the upside due to rising fuel costs. The figures are above the 2-3% RBA target band so remain very firm. After the RBA meeting on Tuesday, the bank remains more focused on the trajectory of new data as there is little progress back towards target. Indeed, Governor Bullock noted that the full impact of the past rate hikes may take up to 12 months to impact the economy. That means we need a series of data points to judge policy going forward.

Chart of the Day – EUR/USD hits a fresh 2026 low

The world’s most popular currency pair posted a new year-to-date low on Tuesday. The bottom at 1.1311 breached the June low at 1.1325 and hasn’t been seen since May 2025. It’s a big week for the major with both eurozone inflation and the US monthly jobs report released within hours of each other on Friday. Currently, there’s around a 32% chance of an ECB rate hike in October, versus a coin toss chance from the FOMC. Core inflation in the region is still not expected to show second round effects. The key US CPI report is released on October 14, with this week’s non-farm payrolls expected to reinforce a solid labour market picture. Bears will target the May 2025 spike low at 1.1210 with the long-term bottom from mid-May at 1.1064.