MUFG: The Month Ahead - FJElite

The US dollar declined by 0.4% in August, the second consecutive month of decline with the July drop driven by joint yen buying intervention by Japan and the US. The main catalyst for the drop in August was US policy related again, this time the UST bond buyback announcement by the US Treasury on 19,n August. The drop in August would have been larger were it not for the Jackson Hole speech by Fed Chair Warsh that lifted expectations of a rate hike. The FOMC meeting will be the key central bank event in September (16*) - a month in which every G10 central bank will meet. The probability of a Fed hike is now at over 60% but the nonfarm payrolls report (4th) and the CPI report (11th) will now be key for shaping that key policy decision. The RBNZ and the Bank of Canada are first up on 2nd Sept with the RBNZ close to fully priced to deliver a 25bp hike. The ECB will follow on 10* Sept and is expected to deliver a 25bp hike. The day after the Fed. the BoE is scheduled to meet with the markets nearly fully pricing no change in policy. The BoJ meets on 18* Sept and like with the RBNZ and ECB is nearly fully priced for a 25bp hike. The following week Norges bank, the Riksbank and the SNB all meet on 24* Sept with Norges bank pricing of a hike similar to the pricing for the Fed (60%). The busy month for G10 central banks closes out with the RBA meeting on 29* Sept - a hike by the RBA is close to 50% priced and will likely be determined by data from Australia throughout the month.

Brent crude oil advanced only marginally in August but there were bigger increases in natural gas prices suggesting not as much supply is getting out of the Strait of Hormuz coupled with increasing demand in Europe with storage levels at extreme lows for this time of the year. TTF natural gas in Europe jumped 20% in August and from the low in late June is up by 73%. The level of natural gas prices are above both assumptions made by the BoE and ECB raising upside risks to inflation. At the end of August there was also a re-escalation of the conflict between the US and Iran and with no obvious end in sight to the conflict, there is an increasing risk of more substantial rises over the coming months. Refinery outages have also picked up markedly due to the Russia-Ukraine conflict with diesel pnces rising sharply. The European average pump diesel price has rebounded by over 20% since early July and is close to the highs set in April.

The 24th September Trump-Xi summit in Washington is shaping up as the most important US-China diplomatic event of 2026. Whether the two sides can stabilise relations, reduce policy uncertainty and avoid escalation in areas such as trade, technology restrictions, AI cooperation, and geopolitical issues, remain the market's top focuses. A major breakthrough still appears unlikely, but even improved communication and limited progress on certain key concerns would help sentiment, and prove modestly supportive for the renminbi and broader Asian FX.