The main focus for markets this week is on the release of U.S. inflation data due later on Wednesday for clues to the direction of Federal Reserve interest rates, as last week's softer-than-expected jobs report and a press conference by Fed Chair Kevin Warsh last month did little to dispel doubts.
"There is a path ahead for easing in inflation as we progress through the remainder of 2026," assuming oil prices remain contained and the Strait of Hormuz reopens, ING analysts wrote. "In fact, the market is already discounting a mild inflation landing."
"If CPI disappoints today, speculators will likely trim their long USD positions against the NZD, EUR, and JPY, the currencies with the best market bets for a September hike," DBS analysts wrote in a research note.
Oil prices edged up in Asian trade, with Brent crude LCOc1 0.9% higher at $89.69 a barrel after an attack by Iran-backed Houthis on a cargo ship in the Bab el-Mandeb strait and a U.S. military strike on a container ship off Pakistan attempting to break its blockade of the Strait of Hormuz.
Federal Reserve Bank of Chicago President Austan Goolsbee said on Tuesday the central bank is more concerned about too-high inflation than about any labor market weakness, although it was unclear whether that stance aligned him with the minority of policymakers who favoured an interest-rate hike last month.
Traders remain split on the Fed's next move. Fed funds futures imply a 50% chance the central bank will leave rates unchanged at its two-day meeting ending September 16, versus the same probability of a quarter-point increase, according to the CME Group's FedWatch tool.
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