• US August CPI will bring fireworks.

• ECB poised to hike. Chile, Peru, Poland, and Turkey to hold.

• Japan July wages to set the BOJ’s hawkish tone.

USD fell last week, largely reflecting broad JPY strength after markets briefly repriced a more hawkish Bank of Japan. USD recovered some ground on Friday. The solid US August nonfarm payrolls revived bets of a September Fed funds rate hike, which New York Fed President John Williams and Fed Governor Christopher Waller had earlier tempered by highlighting the encouraging inflation trend.

A September 16 Fed funds rate hike hinges on Friday’s US August CPI print. Fed Chair Kevin Warsh noted in his August Jackson Hole speech that he welcomed this summer’s better than expected PCE and CPI readings but cautioned “they do not tell me that underlying trends have meaningfully improved.” As such, a hot CPI print would all but seal a September hike and underpin a firmer USD. A cooler reading would strengthen the case for a hold and leave USD vulnerable to a dovish Fed repricing.

More importantly, even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs. Tightening by other major central banks limits policy divergence, with the ECB widely expected to deliver its second 25bps increase of the year on Thursday.

US August CPI Key to September Hike

Headline CPI is expected to rise +0.4% m/m vs. 0.1% in July on higher gasoline prices and remain at 3.4% y/y for a second straight month. Core CPI is expected to rise +0.2% m/m vs. 0.2% in July and ease to 2.4% y/y vs. 2.5% in July. That would match the Cleveland Fed’s CPI inflation forecasts.

The three-month annualized CPI change will indicate whether inflation momentum continues to decelerate while CPI measures which filter out extreme price swings (trimmed, sticky, median, and super core) will be key to judging if the improvement in underlying inflation is stalling or reversing.

Risks around the US August CPI print are finely balanced, setting the stage for an exceptionally volatile market reaction. The August pick-up in the ISM Prices Paid index suggests upside inflation risks have yet to recede. However, the continued slowdown in US average hourly earnings growth in August remains an important disinflationary force.

The US August PPI (Thursday) will serve as a warmup act for Friday’s pivotal CPI report. Watch out for PPI Services less Trade, Transportation, and Warehousing as it partially feeds into the policy-relevant PCE calculation. Portfolio management fees could again distort PPI, although the BEA’s September 30 methodology change is poised to fix that.

The August New York Fed and September University of Michigan consumer surveys are due Tuesday and Friday, respectively. Both surveys should continue to show that longer term inflation expectations remain anchored.

ECB: Another Hike in the Pipeline

The ECB is widely expected to follow June’s 25bps hike with another on Thursday, taking the policy rate to 2.50%. Above target Eurozone inflation and a firmer growth outlook give the ECB scope to raise rates.

The ECB will also publish its September macroeconomic projections. We don’t expect material changes to the Eurozone GDP and inflation forecasts. Improving leading economic indicators and slightly softer core inflation are broadly offset by higher energy prices. Brent crude oil and natural gas prices are 8% and 44% higher, respectively, than at the time of the June ECB meeting.

Bottom line: the Eurozone macro backdrop argues in favor of bringing the policy rate closer to the upper end of the ECB’s 1.75%-3.00% neutral range estimate. The swaps curve more than fully price in ECB rates at 3.00% in the next twelve months, which is EUR supportive.

GDP Pulse in UK

UK July GDP is due Friday but is unlikely to shift the dial on Bank of England (BOE) rate expectations. Real GDP is expected at 0.0% m/m vs. +0.3% in June, as July’s decline in retail sales volumes offset an improvement in the compositive PMI. For reference, the BOE’s baseline Q3 forecast is 0.1% q/q.

The swaps curve implies 75bps of BOE rate hikes in the next twelve months to 4.50%. That’s too aggressive in our view and leaves GBP vulnerable to a dovish BOE repricing. The UK’s negative output gap, a policy rate above the mid-point of the BOE’s 2% to 4% neutral range estimate and the prospect of tighter fiscal policy all argue for a less aggressive hiking cycle.

UK Chancellor John Healey has pledge to build a solid fiscal “buffer against uncertainty” in the October 28 Budget. That points to a mix of tax rises and spending cuts as higher borrowing costs are estimated to have halved the government’s fiscal headroom to around £12bn.

Japan Wages in Focus

USD/JPY rebounded towards 156.75 after nearing its post July intervention low of 155.23 last week. The sustainability of the USD/JPY downswing hinges on the Bank of Japan (BOJ) September 18 decision. In the meantime, USD/JPY faces immediate resistance at it 200-day moving average of 158.46.

Ahead of the BOJ decision, Japan’s July labor cash earning data will set the hawkish tone (Thursday). Wage growth is expected to remain firm in July consistent with the high level of wage increase in the 2026 annual spring labor-management negotiation. Faster wage growth could prompt markets to price-in some risk of a jumbo 50bps BOJ hike in September. BOJ board member Kazuyuki Masu also speaks on Thursday.

CPI Checks: Sweden and Norway

Sweden August CPI (Monday). CPIF is expected at 0.9% y/y (Riksbank forecast: 0.6%) vs. 0.7% in July while CPIF ex-energy is projected at 0.7% y/y (Riksbank forecast: 0.5%) vs. 0.6% in July. While inflation in Sweden is still low, the Riksbank stressed in August that “the probability of a rate increase later this year remains.”

The swaps curve more than fully price in a 25bps hike to 2.00% in December. But with inflation in Sweden still well below the 2% target, the Riksbank can afford to stay on the sidelines for longer. That’s a headwind for SEK.

Norway August CPI (Thursday). Headline is expected at 3.2% y/y (Norges Bank: 3.0%) vs. 3.0% in July and underlying CPI is seen at 3.0% y/y (Norges Bank: 3.3%) vs. 2.7% in July. Faster underlying inflation can reinforce the case for one final 25bps hike to 4.50% by year-end, while a cooler print would argue for a longer pause. Regardless, Norway’s attractive carry remains a key tailwind for NOK.

Central Bank Watch

Chile’s central bank is widely expected to keep the policy rate on hold at 4.50% for a fifth straight meeting (Tuesday). The bank is in a good place to keep rates steady for some time. Two-year inflation expectation surveys remain close to its 3% inflation target and the policy rate is near the top of the bank’s 3.75%-4.75% neutral range estimate. USD/CLP should be trading much lower given the rally in copper prices, Chile’s main commodity export.

National Bank of Poland (NBP) is widely expected to keep the policy rate at 3.75% for a fifth straight meeting (Wednesday). NBP delivered 200bps of cuts since July 2025 and the swaps curve implies 75bps of tightening to 4.50% in the next twelve months as inflation is gaining traction. Still, Poland’s positive real rates and favorable balance of payments backdrop continue to support PLN.

Peru’s central bank (BCRP) is widely expected to keep rates unchanged at 4.25% for a 12th consecutive meeting (Thursday). PEN risk underperforming if the bank remains relaxed about above target inflation as it could keep real rates negative for longer.

Türkiye central bank (CBTR) is widely expected to keep rates on hold at 37.00% for a fifth straight meeting (Thursday). The disinflationary process has stalled around 30% y/y and argues for continued tight monetary policy.