Europe Hikes, Japan Lines Up (14-18 September)

The ECB raised rates 25bp, taking its deposit rate to 2.50%, while Japan’s 7.6% producer inflation strengthened expectations for a BOJ hike this month.

German and Japanese bond yields rose toward 3.50% and 2.99%, respectively.

US inflation held at 3.4% in August, while monthly CPI rose 0.4%, the strongest in three months. Combined with solid producer prices, the data pushed the probability of a 25bp Fed hike on Wednesday to around 86%.

Currencies

Dollar Index: The dollar held firm before Wednesday’s Fed decision as stronger US inflation data strengthened the case for another hike. August CPI was unchanged at 3.4% annually, while the 0.4% monthly increase was the strongest in three months and producer prices also accelerated. A 25bp hike is now priced at roughly 86%, helping push the euro below $1.16 and the yen beyond 154 per dollar, while higher oil added further inflation pressure.
Euro: The euro slipped below $1.16 to around 1.1585, extending its narrow 100-pip range into a third week. The ECB delivered the expected 25bp hike, taking the refinancing rate to 2.65%, marginal lending rate to 2.90%, and deposit rate to 2.50%. Lagarde’s comments were hawkish but broadly matched expectations. Resistance stands at 1.1640, with support at 1.1560.
British Pound: The pound eased to around $1.3515 as a firmer dollar and stronger US inflation strengthened Fed tightening expectations. UK yields stayed near multi-decade highs on persistent inflation and fiscal concerns, while further BoE tightening remains priced in.
Japanese Yen: The yen weakened beyond 154 per dollar, retreating from near seven-month highs as stronger US producer inflation supported the dollar. Higher oil prices increased Japan’s inflation risks, while the US-Iran conflict remained unresolved. Japanese producer inflation reached 7.6% in August, strengthening expectations for a BOJ hike this month. Resistance stands at 155.00, with support at 153.80.

Commodities

Gold Feels the Fed Pressure

Gold traded around $4,300–$4,334 an ounce after three consecutive weekly declines, pressured by higher oil and expectations for tighter Fed policy. A 25bp hike on Wednesday is priced at roughly 86% after August CPI held at 3.4% annually and rose 0.4% monthly, the strongest increase in three months. Resistance stands at $4,350, with support at $4,260.

Brent’s Rally Tests $110

Brent approached $108 a barrel, its highest in four months, after gaining more than 9% last week. Saudi Arabia suspended its 7 million bpd East-West pipeline following drone attacks, with no clear restart date. The route bypasses the Strait of Hormuz, where talks between Iran and Gulf states over a temporary shipping corridor were postponed. Resistance stands at $110, with support at $107.

Silver Tests Its Appeal

Silver fell toward $64, losing more than 3% for the week as a stronger dollar and higher yields weighed on the metal. August CPI held at 3.4% annually and rose 0.4% monthly, while the probability of a Wednesday Fed hike reached roughly 86%, adding further pressure to rate-sensitive precious metals.

Fixed Income

US 10-Year Treasury Yield: The US 10-year yield climbed toward 4.97%, near multiyear highs, as stronger inflation reinforced expectations for tighter Fed policy. August CPI rose 0.4% monthly while producer prices accelerated, lifting the probability of a 25bp Wednesday hike to roughly 86%. Higher oil added another source of inflation pressure.
UK 10-Year Gilt Yield: The UK 10-year yield stayed near multi-decade highs, supported by higher global yields alongside persistent domestic inflation and fiscal concerns. Stronger US price data and rising oil reinforced expectations for tighter monetary policy, with further BoE tightening still priced in.
Japan 10-Year Government Bond Yield: Japan’s 10-year yield edged toward 2.99% as producer inflation reached 7.6% in August, strengthening expectations for a BOJ hike this month. Higher oil added to domestic price pressures, while rising global yields provided another push upward.
Germany 10-Year Bund Yield: Germany’s 10-year yield rose toward 3.50% after the ECB’s 25bp rate increase, which took the deposit rate to 2.50% and refinancing rate to 2.65%. Lagarde’s hawkish tone, higher oil and rising global yields supported the move across the curve.

Economic Data

United States - Inflation

US annual inflation held at 3.4% in August, unchanged from July and matching forecasts, while monthly CPI rose 0.4%, its strongest increase in three months. Combined with accelerating producer prices, the figures pushed the probability of a 25bp Fed hike on Wednesday to roughly 86%.

Euro Area - ECB

The ECB raised rates by 25bp as expected, taking the refinancing rate to 2.65%, marginal lending rate to 2.90%, and deposit rate to 2.50%. Lagarde’s comments struck a hawkish tone but broadly matched expectations, as higher energy costs add to inflation pressure.

China - Inflation

China’s annual CPI accelerated to 0.8% in August from 0.5% in July, matching forecasts. Producer inflation rose to 3.8% from 3.5%, beating the 3.7% estimate, largely as higher energy costs linked to the Middle East conflict fed into prices.

Japan - Producer Prices

Japanese producer inflation accelerated to 7.6% in August, strengthening expectations for a BOJ rate hike this month. Higher oil prices added to price pressures, giving policymakers further reason to consider additional tightening.

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