- Central banks speak. A blockbuster policy week closes with inflation risks firmly back in focus, as major central banks navigate the difficult combination of higher energy costs, geopolitical uncertainty and fragile growth.
- Hawks hoot. The Fed unanimously hiked 25bp, reinforcing its inflation-fighting credentials and lifting US yields and the dollar as markets reassessed the prospect of further tightening.
- Old Lady holds. The BoE kept rates unchanged, but ended sales of long-dated gilts, easing pressure at the long end as policymakers balance inflation risks against a soft growth backdrop.
- Doves coo. The BoJ’s dovish hike left the yen exposed, with two policymakers opposing the move and little urgency around further tightening. USD/JPY has jumped over 2% this week.
- Oil cools. Energy prices eased into week-end as attention turned towards diplomacy, with markets watching for greater clarity over US strategy in the Middle East as the conflict continues.
- Dollar delivers. Policy divergence remains firmly in the FX driving seat, helping the dollar index to a seven-week high. But lower oil prices have taken the edge off the US currency’s momentum.
Global macro
Central banks split as inflation stays firm
Fed hikes. The Fed raised rates 25bp to 3.75%–4.00%, as expected, delivering its first hike since 2023. The vote was unanimous, while updated projections showed 16 of 18 officials expecting at least one further increase this year.
BoE holds. The Bank of England kept rates at 3.75%, but the 6–3 vote showed a hawkish split, with three members backing a hike. UK inflation rose to 3.1% y/y from 2.9%, while the Bank warned that prolonged energy pressure could lift inflation above 4% in early 2027.
BoJ hikes. The Bank of Japan has raised its key rate by 25bp to 1.25% in a split vote. Dissent could make it harder for the board to reach consensus on another hike this year. The yen weakened as a result.
US demand. August retail sales jumped 1.2% m/m vs 0.8% expected, while sales excluding autos rose 1.4%, more than twice the consensus estimate. Import prices also increased 0.7% vs 0.2% expected, reinforcing the Fed’s concern over strong demand and persistent price pressure.
Canada cools. Canadian inflation held at 3.0% y/y, in line with expectations, while prices fell 0.1% m/m. The BoC’s trim and median measures remained near 2.0%, but August housing starts missed at 229k vs 240k expected, adding to signs that domestic activity is losing momentum.
China weakens. China’s retail sales slowed to 0.4% y/y vs 0.8% expected, down from 0.6%, as spending on autos, property-related goods and jewellery contracted. The result keeps weak domestic demand at the centre of China’s growth problem despite broader inflation pressure from energy and commodities.
Week ahead
Sentiment snapshot
Gulf talks ahead. President Trump is expected to meet Gulf leaders on the sidelines of the UN General Assembly in New York next Tuesday to discuss the next steps in the conflict with Iran. Markets will be watching closely for signs that the meeting could help rebuild momentum towards de-escalation.
Nordic decisions With the major central banks now behind us, next week shifts the focus to second-tier policymakers. In Europe, attention will turn to the Norges Bank and the Riksbank on 24 September. The Riksbank is expected to leave rates unchanged, while Norges Bank is expected to raise its policy rate by 25bps to 4.50%.
Dovish Swiss. The Swiss National Bank will also decide on interest rates. Despite other major economies facing upside inflation-related risks, Switzerland’s price pressures have remained low. Thus, policymakers are likely to keep interest rates untouched at 0.0%.
Business mood check. A raft of September S&P PMI releases across the major economies will provide a timely read on business sentiment. The recent surge in oil prices and tighter monetary policy are hardly supportive for activity. We will be watching closely to see whether recent developments have started to weigh on confidence, which has remained broadly resilient so far this year.
FX views
From rates to oil
USD Dollar revival. The US dollar index gained just over 1% this week, breathing life into what had been a lacklustre September. The move was driven primarily by a hawkish Federal Reserve meeting, which delivered a unanimous 25bp rate hike. Dollar bulls were encouraged not only by the hike itself, but also by the absence of dissent, helping to restore some of the Fed’s credibility at a time when the institution is facing increasing scrutiny. From here, the outlook is less clear. Hawks argue that one hike is of limited value unless followed by further tightening, while doves point to a potential decline in oil prices as a reason for patience. In other words, the dollar’s near-term direction will likely depend on geopolitical developments. Next week’s scheduled meeting between leaders of the six Gulf states and President Trump is a key event to watch. Should it support de-escalation efforts, we suspect DXY will struggle to break sustainably above 100.50 in the near term.
EUR Holding the line. EUR/USD heads into the weekend around 1% lower, finding support near 1.1450. Notably, since the June low of 1.1325, the pair has continued to post higher lows, suggesting that the broader bullish trend remains intact, albeit somewhat bruised. In fact, despite this week’s Federal Reserve rate hike and signals that further tightening may follow, EUR/USD sentiment has not deteriorated materially. Options markets reflect this, with investors showing little increase in demand for protection against euro weakness compared with earlier in the month. The reason may be that the Fed’s hawkish stance is already well priced in, raising the bar for further upside surprises from US policy. As a result, we expect EUR/USD to consolidate above 1.1450 in the coming days, with scope for renewed gains depending on the outcome of next week’s meeting between Gulf state leaders.
GBP Loses its footing. Sterling had a tough week, with global rates and risk sentiment remaining key drivers, while domestic data sharpened the BoE’s policy trade-off. UK releases reinforced the familiar mix of cooling activity and persistent energy-driven inflation, while the BoE held rates at 3.75% as expected. Crucially, markets had built a strong hawkish bias in the lead up to the meeting, hence sterling sold-off in the aftermath. Still, markets remain priced for significant tightening further out, and that leaves sterling more vulnerable should policymakers ultimately deliver less. Technically, the picture has deteriorated. After the hawkish Fed decision, GBP/USD broke decisively through a cluster of key daily moving averages in the low-1.34s, opening the door towards the 100-week moving average in the low-1.32s, a downside risk we flagged earlier this week. GBP/EUR has also retreated towards the lower end of the 1.16 handle, having struggled for traction around its 100-week moving average in the upper echelons. Overall, sterling enters next week with momentum weakening and rate expectations looking increasingly stretched, leaving global risk conditions and any dovish BoE repricing as key downside risks.
CHF Fresh 2026 lows. The Swiss franc remains under pressure, with USD/CHF up almost 1% this week following the Fed’s hawkish hike. Rate divergence remains the key driver, with CHF’s correlation to yield spreads strengthening sharply after several years of relative disconnect. With the SNB anchored at zero and low volatility supporting carry demand, the franc’s yield disadvantage is proving difficult to ignore. USD/CHF is trading around 0.824, close to 2026 highs and roughly 4% higher YTD, highlighting the franc’s underperformance against the dollar. EUR/CHF is also pressing higher around 0.946, its highest level of 2026 and more than 5% above its March low near 0.901. For now, rate differentials continue to trump CHF’s traditional safe-haven appeal.
CAD Divergence upsets the Loonie. USD/CAD ends the week trading close to 1.399, up almost 0.9% on the week after the Fed’s 25bp hike drove the US-Canada two-year yield spread to a cycle high near 140bp. The pair briefly traded above 1.40 for the first time since August 7, while the hawkish Fed outlook forced markets to reconsider expectations for a sustained CAD recovery. BoC hike pricing has also increased, but Canada faces a weaker labor market, softer manufacturing activity and growing damage from the trade dispute, leaving the BoC with less room to tighten than the Fed. Higher oil offers some support through energy revenues, although the oil tailwind link has faded through 2026 and related inflation and risk-off effects have favored the US dollar during the week. Technically, a sustained break above 1.40 would open 1.41, while 1.385 and the 200-day average near 1.383 provide support. The September 29 US import restrictions and the October 28 BoC meeting will determine whether the rate divergence extends or CAD can regain some ground.
AUD Aussie leans on the RBA. The IMF says the RBA should stand ready to hike further, pointing to sticky underlying inflation and doubts that financial conditions are yet restrictive enough. Its concern: a fresh leg higher in global energy prices could trigger stronger second-round effects and lift inflation expectations, warranting more tightening. IMF flags a delicate balance, though — if growth stalls sharply, cuts should be considered, but only once inflation is clearly coming under control. We read the data the same way and look for a 25bp hike in September, with risks tilted toward two further 25bp moves rather than a pause. The Fed’s renewed inflation focus lifted US front-end yields and the dollar, keeping AUD/USD on the back foot. Support sits at the 100-day EMA of 0.7068, then 0.7000; resistance lies at the 21-day EMA of 0.7143, then 0.7200.
CNH China’s recovery runs on one engine. August data stayed uneven. Retail sales rose just 0.4% y/y, undershooting the 0.8% consensus and July’s 0.6% and pointing to still-soft domestic demand. Industrial output did the heavy lifting, accelerating to 5.2% y/y and beating both the 4.8% consensus and July’s 4.5%. Fixed-asset investment fell 7.2% y/y in January–August, a deeper drop than the prior 6.7%. Property stayed the drag: real estate investment sank 19.9%, new home prices eased 0.17% m/m and existing homes fell 0.31%, so the recovery still leans on production rather than demand. The Fed’s inflation focus and a firmer dollar hand USD/CNH room to rebound, even as it holds near a three-year low. A break above the 21-day EMA of 6.7183 opens the 50-day EMA of 6.7380; support holds at 6.7000.
JPY Dovish hike hurts. The BoJ’s dovish hike left the yen exposed and put the global carry trade back on the radar. The central bank delivered the tightening markets had expected, but the details lacked conviction. Two policymakers voted against the move, none favoured a larger hike, and while the BoJ maintained that further tightening would come, it gave little indication that policymakers were in any hurry to deliver it. USD/JPY is over 2% higher on the week as a result. The pair trades over 5% below its 23 July peak of 163.99, with the 21-day EMA at 156.53 and 50-day EMA at 158.17 the next resistance.
MXN Carry absorbs shock. USD/MXN is trading near 17.17, up about 1.2% this week after the Fed’s 25bp hike briefly pushed the pair to 17.27. The peso recovered on Thursday as oil retreated and renewed US-Mexico trade talks improved sentiment, but the Fed’s firmer rate path has narrowed Mexico’s two-year yield advantage to around 320bp. Carry remains a strong anchor, while Banxico’s expected hold at 6.50% should preserve that support. Technically, 17.27 is the immediate resistance level, followed by 17.50, while 17.00 and the yearly low near 16.89 provide support. Next week, attention turns to the September 24 Banxico meeting and further trade negotiations, with any agreement likely to strengthen the peso and bring the recent lows back into focus.
BRL Carry defies easing. USD/BRL is trading near 5.13, with the real holding firm despite the Fed hiking by 25bp and Brazil’s Copom cutting the Selic rate for a fifth straight meeting to 13.75%. Brazil’s two-year yield premium over the US remains exceptionally wide at roughly 918bp, helping the currency absorb the opposing policy moves. A stronger-than-expected $7.4bn trade surplus and improving election prospects for a more fiscally conservative outcome have provided further support, although pre-election spending and warnings over debt sustainability keep the fiscal outlook fragile. USD/BRL remains contained between 5.10 and 5.18, with a break below 5.10 opening the way toward 5.00, while moves above 5.18–5.21 would signal renewed pressure on the real. Election polling and the Copom’s next policy signal remain the main domestic drivers, with implied volatility near 18% reflecting considerable two-way risk.
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
