Last week, the global foreign exchange market was shaped by a confluence of factors, resulting in a pattern of US dollar strength and a Japanese yen that faced pressure before rebounding. Following the Federal Reserve's rate hike, officials continued to signal a hawkish stance; combined with robust economic data and oil price volatility driven by the fluctuating situation in the Middle East, this pushed the US Dollar Index to a near two-month high.

Meanwhile, although the Bank of Japan raised interest rates to a 31-year high, it failed to provide clear hawkish guidance. Consequently, the yen continued to weaken amidst the low liquidity of the holiday period, while market vigilance regarding potential intervention remained high. On Friday (September 25), statements from Japanese officials reinforcing their stance on intervention triggered a significant rebound in the yen, marking a dramatic conclusion to the week's trading. Overall, interest rate outlooks and geopolitics emerged as the primary drivers of the currency market throughout the week.

Since 2026, the central anxiety in global bond markets has revolved around the issue of US debt. As the US federal government's debt surpasses $40 trillion—with the debt-to-GDP ratio rapidly approaching 130%—market panic has spread. Many investors fear the US is nearing a sovereign debt tipping point, risking a crisis of default and hyperinflation that could trigger a systemic collapse of the bond market.

Last week, gold prices were suppressed by market expectations as a series of bearish factors materialized simultaneously: persistent inflation, strong economic data, hawkish rhetoric from officials, surging US Treasury yields, and heightened expectations for interest rate hikes. Days of bearish pricing had already fully absorbed the short-term negative sentiment; as the downward momentum for gold prices began to wane, the market appeared tightly coiled, poised for a potential shift.

The international crude oil market experienced a rollercoaster ride last week, with prices swinging wildly between supply concerns and hopes for peace. Brent crude and US crude futures both saw intense volatility, driven by the ongoing conflict involving Iran, shifts in shipping through the Strait of Hormuz, adjustments to Saudi crude exports, and fluctuating diplomatic signals between the US and Iran.

Review of Last Week's Market Performance:

Wall Street wrapped up a week of intense volatility on Friday, with the three major U.S. stock indices closing higher. Potential diplomatic breakthroughs regarding the situation in the Middle East led to a significant pullback in international oil prices, temporarily easing market concerns about escalating energy-driven inflation; however, U.S. Treasury yields remained near 20-year highs, and expectations of continued Federal Reserve rate hikes kept investors from fully letting their guard down. By the close, the Dow Jones Industrial Average had risen 0.3% to 51,828.62; the S&P 500 gained 1.2% to 7,743.41; and the Nasdaq Composite climbed 2% to 27,068.72. Overall, U.S. equities demonstrated considerable resilience throughout the week.

Gold traded at approximately $4,285 per ounce on Friday, falling more than 1% for the week as rising U.S. Treasury yields and expectations of further Federal Reserve rate hikes weighed on the metal. Persistent inflationary pressures and economic data consistently highlighting U.S. economic resilience maintained this downward pressure on gold, despite the drop in oil prices on Friday. Meanwhile, gold demand in India saw a slight recovery as lower prices attracted buyers during the festive season.

Silver traded around $64 per ounce on Friday, dropping more than 3% for the week due to the same factors pressuring gold: rising U.S. Treasury yields and expectations of further Federal Reserve rate hikes. Meanwhile, oil prices paused their two-day rally following reports that U.S. and Iranian negotiators were discussing a potential deal in New York; such an agreement could see Tehran reopen the Strait of Hormuz in exchange for Washington easing its economic blockade on Iran.

The U.S. Dollar Index fell below 101 on Friday, halting a five-session winning streak that had previously pushed the currency to a July high. Nevertheless, the dollar rose about 1% over the week, marking its second consecutive week of gains. This move was supported by market expectations of further monetary policy tightening by the Federal Reserve, ongoing uncertainty in the Middle East, a continuous rise in oil prices, and the resilience of US economic activity.

The EUR/USD pair snapped a four-day losing streak, attempting to stabilize and return to the 1.1400 area by the weekend. The pair's notable rebound followed an intraday correction in the US dollar, which coincided with a drop in crude oil prices and a slight pullback in US Treasury yields across the curve. USD/JPY fell sharply on Friday, pausing its recent strong rally to a three-week high of 158.86, as concerns over potential intervention by the Bank of Japan made yen bears more cautious. Meanwhile, the dollar maintained a strong bullish tone, driven by the Federal Reserve's hawkish outlook and inflation fears—fueled by oil prices—pushing US bond yields to multi-year highs. Additionally, the Bank of Japan's relatively dovish rate hike last week likely capped the yen and supported the spot price. The British pound ended the week slightly above $1.32, hovering near three-month lows, as the dollar was bolstered by growing expectations of further Federal Reserve rate hikes this year. Investors also assessed recent comments from Bank of England policymakers for clues regarding the monetary policy outlook. AUD/USD fell to a new low since early August during Friday's Asian session; after dropping below the 200-day SMA overnight, it appeared vulnerable near the 0.7000 level. Against the backdrop of the Fed's hawkish stance, two consecutive days of rising oil prices reignited inflation concerns and continued to push US bond yields to multi-year highs. Furthermore, geopolitical risks drove the dollar to a two-month high, overshadowing bets on a Reserve Bank of Australia rate hike and weighing on the pair.

Crude oil prices retreated to around $91.40 per barrel on Friday after Iran called on the US to return to an interim peace agreement that had failed to end the summer conflict. Oil markets remained volatile this week due to mixed signals regarding peace prospects, signs of recovering energy flows in the Middle East, and speculation about potential U.S. restrictions on diesel exports. Despite recent gains, the U.S. crude oil benchmark price fell by approximately 3.91% last week.

Bitcoin continued to consolidate near $84,000 on Friday, while most other assets in the cryptocurrency market generally trended higher. After rallying from below $63,000 in August to nearly $87,000 on Tuesday—followed by a shift into a sideways trading pattern—capital began rotating into more speculative altcoins; the CoinMarketCap Altcoin Season Index rose to 56, a significant increase from 45 a week ago and 38 a month ago, marking its highest level in over three months.

The yield on the U.S. 10-year Treasury note hovered around 5.2% on Friday, nearing levels not seen in two centuries. Traders refocused on hawkish remarks from Federal Reserve officials, while a lack of concrete progress in negotiations to end the conflict between the U.S. and Iran continued to fuel inflation concerns. Efforts by Treasury Secretary Bessent to curb long-term yields through increased Treasury buybacks were widely viewed as having limited impact, further exacerbating market anxiety. Investors currently anticipate a 25-basis-point rate hike by the Federal Reserve next month, assigning a probability of approximately 66% to this move.

Market Outlook for the Week:

This week (September 28 – October 2), the market faces a test regarding the divergence between U.S. Treasury yields and the stock market, alongside the release of key data and speeches from multiple Federal Reserve officials. With a concentration of data releases covering inflation, employment, and manufacturing PMIs from various countries, investors will use metrics such as the PCE, national CPI figures, and the non-farm payroll report to reassess the Fed's future rate-hike trajectory. Meanwhile, the persistently rising U.S. Treasury yields and the extreme sectoral divergence within the U.S. stock market will undergo a fresh test of fundamentals. Markets will focus on a series of global economic indicators: Australia’s September cash rate decision; the US Conference Board Consumer Confidence Index (September) and JOLTs Job Openings (August); China’s official and S&P Global (SPGI) manufacturing PMIs; Germany’s preliminary CPI (September); and US ADP employment data, PCE price index, and Chicago PMI. Thursday’s schedule includes CPI data for the UK, France, Germany, and the Eurozone, as well as the final US SPGI manufacturing PMI and Challenger job cut figures. Friday brings Tokyo and Eurozone CPI data, culminating in the highly anticipated US non-farm payrolls report for September.

The crude oil market awaits inventory data from the API and EIA. Coupled with geopolitical uncertainties involving the US and Iran, oil price volatility could feed into energy-related inflation expectations, further influencing bond markets and inflation pricing. Following last week's release of US strategic reserves, market participants will be watching for data on the rate of depletion.

Conclusion:

Diplomatic agreements—or the potential for escalating hostilities—involving the US, Iran, and Gulf Cooperation Council (GCC) nations will remain in focus, as high energy prices and robust economic activity have pushed global bond yields to multi-decade highs. Meanwhile, the Eurozone and its major economies are set to release inflation and unemployment data, with markets anticipating multiple rate hikes from the European Central Bank during this cycle. In China, PMI data will be released during a holiday-shortened week. Japan will report on industrial production, retail sales, and the Bank of Japan’s quarterly Tankan survey, while trade data from South Korea could provide a new catalyst for the AI-related trade sector. Finally, the Reserve Bank of Australia is scheduled to announce its interest rate decision.

Fed officials send mixed signals: Inflation could fall rapidly, yet multiple risks may keep prices stubbornly high.

Richmond Fed President Thomas Barkin suggested that inflation could decline quickly but warned that prices might prove sticky. The Federal Reserve raised interest rates by 25 basis points last week—its first hike in years—and most officials anticipate at least one more increase before the end of the year. Beyond geopolitical conflicts and tariffs, inflationary drivers include spillover effects from AI infrastructure investment and various structural costs in sectors such as healthcare and transportation; the frequency of future rate hikes remains contingent on economic data, and policy uncertainty stays high.

A potential path exists for a rapid decline in inflation, driven by multiple variables

Thomas Barkin stated that he is open to the possibility of a rapid short-term decline in inflation. He explained that various disruptive factors previously impacting the U.S. economy could subside or reverse. Consumer resilience is not indefinite; as households approach their spending limits—compounded by slowing corporate investment and a modest rise in the unemployment rate—a convergence of these conditions could pave the way for inflation to retreat toward the Federal Reserve's long-term target of 2%.

Looking at inflation trends, U.S. annual inflation—measured by the Consumer Price Index (CPI)—rose from 2.4% in February to 3.4% last month. Driven by energy shocks stemming from geopolitical conflict in the Middle East, inflation briefly hit 4.2% in May, marking a three-year high. Faced with persistent upward pressure on prices, the Federal Reserve implemented a rate hike last week, raising the benchmark interest rate by 25 basis points to a range of 3.75%–4%. This marked the Federal Open Market Committee's (FOMC) first rate hike since July 2023.

Acknowledging the necessity of the hike, while the pace of future increases remains uncertain

Although Barkin does not currently hold a vote on the FOMC, he stated that the committee responsible for interest rate decisions must take action to curb inflation—a view echoing remarks made last week by Kevin Warsh. "We are committed to bringing inflation back down to the 2% target, and last week's rate hike will help achieve that," he said. "As for whether further hikes are needed or how many there might be, that remains to be seen."

All committee members voted unanimously in favor of the rate hike at this FOMC meeting. Fed Governor Warsh stated that this rate hike would help accelerate the return of inflation to the 2% target range, though he acknowledged it would be inappropriate to preemptively predict the committee's future policy decisions.

According to the Summary of Economic Projections, 16 of the 18 FOMC officials anticipate at least one additional rate hike before the end of the year. Based on the meeting schedule, the 12-member policy-making committee is set to hold two further meetings—one in late October and another in early December—during which subsequent policy moves will take shape.

The risk of sticky inflation cannot be ignored; its sources extend well beyond geopolitics and tariffs.

While discussing an optimistic scenario, Barkin also highlighted a baseline-alternative scenario that warrants caution: inflation could prove more stubborn than the market anticipates. He noted, "Short-term shocks may continue to reverberate, and new cost pressures could keep emerging. Resilient demand will likely feed through to consumer prices, and the lagged effects of the current inflationary cycle will also drive prices higher."

He further cautioned that inflationary pressures stem from more than just Middle East geopolitical conflicts or the import tariffs imposed by the Trump administration. Citing data, he pointed out that in July, more than 60% of the components within the Personal Consumption Expenditures (PCE) price index—the Federal Reserve's preferred inflation gauge—recorded year-over-year increases exceeding 3%.

Barkin stated, "The frequency and impact of current cost pressures are rising. While tariffs and oil prices are certainly contributing factors, spillover effects from massive AI infrastructure expansion, along with the costs of medical services, transportation, and various commodities, are also continuing to fuel inflation." Notably, he is set to gain a voting seat on the Federal Open Market Committee (FOMC) next year, meaning his views will directly influence interest rate decisions.

Conclusion:

Overall, Thomas Barkin’s remarks did not offer a one-sided policy signal; instead, he outlined two potential trajectories for inflation. On one hand, factors such as peaking consumption, weakening investment, and a cooling labor market could combine to exert downward pressure on prices. On the other hand, the persistence of energy shocks, tariff costs, and new structural factors—such as AI infrastructure development—threaten to prolong the inflationary period.

The Federal Reserve has taken the initial step toward resuming rate hikes, and most officials favor one additional increase this year; however, whether this actually materializes depends heavily on upcoming inflation and employment data. Financial markets should avoid simply betting on a rapid decline in inflation and prematurely positioning for interest rate cuts. Amidst multiple structural cost pressures, the period of high inflation may be more prolonged than anticipated; it is essential to continue monitoring CPI, PCE, and employment data while awaiting greater clarity on the policy trajectory.

10-Year US Treasury Real Yields Hit 20-Year Highs, Yet Gold ETF Holdings Continue to Rise

Last week, the real yield on 10-year US Treasury bonds reached a 20-year high. I observed a highly unusual market phenomenon: while the real yield climbed to a two-decade peak, global gold ETF holdings continued to recover. This divergence suggests that market concerns regarding US fiscal sustainability are reshaping the long-standing negative correlation between real yields and gold, signaling a profound shift in the logic governing gold pricing.

A Rare Divergence: Real Rates Rise While Gold ETF Holdings Increase

The real yield on 10-year US Treasury bonds touched 2.63% last Friday—a high not seen in over twenty years—marking a cumulative rise of 76 basis points since the start of the year. In contrast, after a period of reduction in the first half of the year, total gold ETF holdings have entered a recovery phase. The stark contrast between these two datasets illustrates that the once-solid inverse relationship between gold demand and real yields is loosening.

Real yield represents the actual return a bond offers investors after adjusting for inflation. Historically, real yields have been a key indicator driving gold price trends. Precious metals like gold, silver, and platinum do not generate interest or dividends; when real yields rise, the return on holding bonds becomes more attractive, often prompting investors to shift capital from gold to bonds, which typically puts downward pressure on gold prices—a dynamic driven by the opportunity cost of investing in gold.

Looking back at the Federal Reserve's aggressive rate-hiking cycle of 2022–2023, real yields surged rapidly, leading to a massive exodus of investors from gold ETFs and a corresponding decline in holdings. However, during that previous market cycle, gold prices did not experience a deep decline; massive gold purchases by central banks offset the selling pressure caused by ETF outflows. Simply put, while gold prices decoupled from real yields at that time, ETF holdings continued to fluctuate in line with traditional interest rate dynamics.

The current decoupling goes a step further: ETF capital is no longer deterred by high real yields.

The current market environment differs fundamentally from the previous rate-hike cycle. Driven by sticky inflation and a renewed surge in long-term U.S. Treasury yields, the 10-year real yield has continued to climb, hitting a twenty-year high. Yet, the market has not seen a repeat of the massive ETF sell-offs of the past; instead, investment demand for gold has demonstrated remarkable resilience. This time, it is not just the spot price of gold that has broken free from the constraints of real yields; ETF holding patterns have also defied the old framework.

This shift indicates that the traditional "opportunity cost" logic—whereby rising real yields diminish gold's appeal—is no longer the primary driver of the market. The most significant underlying factor is growing market concern regarding U.S. fiscal sustainability and the continued expansion of government debt. Investors no longer view rising long-term yields merely as an investment alternative superior to gold; instead, they interpret high yields as warning signals of fiscal risk, mounting debt-servicing burdens, and questionable financial stability. In this environment, the value of allocating to gold—an asset independent of the traditional financial system—continues to stand out.

The sources of capital supporting gold have also become more diversified. Central bank buying remains steady, ETF capital is flowing back into Western markets, and Asian investors continue to show robust, long-term demand for the asset. Compared to the 2022–2023 period, the buyer base for gold has expanded significantly, creating a more solid foundation for demand.

With Federal Reserve rate hikes largely priced in, underlying demand supports a positive medium- to long-term outlook for gold prices.

Following the Federal Reserve's rate hike last week, I observed market movements and concluded that the Fed's hawkish monetary policy has already been largely digested by the market. He noted last Friday that, heading into the weekend, gold had reacted tepidly to the latest rate hike, having largely priced in the negative impact of the policy.

With the Federal Reserve offering no signals that exceeded market expectations, the focus has shifted to new demand from investors. Despite a recent pullback in gold prices, holdings in gold ETFs have climbed to a seven-month high—clear evidence that significant long-term capital, insensitive to interest rate fluctuations, continues to enter the market.

A comparison with market trends in 2022 and 2023 reveals that even aggressive Fed rate hikes—which drove up US Treasury yields—failed to trigger a sustained, sharp decline in gold prices; it was precisely this underlying, rate-insensitive demand that offset traditional macroeconomic headwinds. This foundational buying power remains robust. While rate hikes may slow the pace of gold's ascent, they will not reverse the medium-to-long-term trend; the outlook for gold remains optimistic.

Conclusion:

Overall, the simultaneous occurrence of high real yields and increased gold ETF holdings represents the most noteworthy structural shift in the gold market in recent years. Fiscal risks have increasingly eclipsed opportunity costs as a key driver of capital allocation into gold, necessitating a re-evaluation of traditional trading frameworks. In the short term, US Treasury real yields will continue to cause price volatility, and the lingering effects of rate hikes may occasionally disrupt the market. However, a diversified demand base—comprising central banks, Asian long-term capital, and Western ETF flows—provides strong support for gold.

Looking ahead, monitoring the gold market requires looking beyond real interest rates; the evolution of US fiscal debt risks will be a critical variable determining the peak of the current gold bull market.

Crude Oil Trading Alert: Unexpected API Inventory Build and Easing Geopolitical Tensions Drive US Crude Lower

Following hours of talks between the US and Iran, market expectations for a reduction in supply risks have risen, causing WTI crude to briefly dip toward $88 per barrel. Meanwhile, an unexpected 1.786-million-barrel increase in US crude inventories has intensified short-term bearish pressure. However, Saudi oil facilities remain at risk of attack, meaning the downside support for oil prices has not yet fully vanished. The key variable driving this adjustment is the signals regarding negotiations emerging between the U.S. and Iran. U.S. President Trump stated that U.S. officials held talks with Iranian representatives lasting approximately three hours during the UN General Assembly and described the meeting as productive. Prior to this, the U.S. had signaled a potential willingness to seek a negotiated solution, prompting the market to re-evaluate the likelihood of easing regional tensions and a recovery in energy supplies. For the crude oil market, if these diplomatic engagements continue, the risk premium previously priced in due to concerns over transport disruptions, supply outages, and attacks on infrastructure could decline further.

Meanwhile, another development on the supply side is also weighing on bullish sentiment. Data from the American Petroleum Institute (API) shows that U.S. crude oil inventories rose by 1.786 million barrels for the week ending September 18—a significant deviation from the market's expectation of a 500,000-barrel decline—though the increase was smaller than the previous week's 7.14-million-barrel build. Consecutive inventory increases suggest that the short-term supply-demand balance in the U.S. crude market is not as tight as some participants had anticipated, placing additional pressure on oil prices. However, this inventory data is insufficient to fundamentally alter the assessment of potential risks facing global crude supplies. While U.S. commercial crude inventories have risen steadily, levels throughout the year have been influenced by factors such as Strategic Petroleum Reserve (SPR) releases and regional supply disruptions. At the same time, recent declines in U.S. gasoline and distillate inventories indicate that the refined products market remains somewhat tight. Consequently, the market is now focusing on whether the rise in crude inventories will persist and whether refinery demand will continue to absorb supplies in the coming weeks.

The situation in the Middle East remains a critical risk factor influencing oil prices. Saudi Arabia previously reported that Houthi forces had fired ballistic missiles toward Riyadh and claimed responsibility for attacks on energy facilities in locations such as Yanbu; Saudi officials stated that the attacks were intercepted and that there is currently no evidence of new, large-scale disruptions to oil production. Given that Yanbu is a vital Red Sea export hub for Saudi Arabia, the market remains closely attentive to the operational stability of these facilities. The restoration of the Saudi East-West Pipeline has also emerged as a significant variable affecting recent oil price movements. This pipeline, connecting oil fields in eastern Saudi Arabia to the Red Sea port of Yanbu, has a transport capacity of approximately 7 million barrels per day; its restoration could, to some extent, reduce the reliance of Saudi crude oil shipments on the Strait of Hormuz. Saudi Arabia is currently working to bring the relevant facilities back online and plans to gradually resume exports via Yanbu. Should the pipeline and exports from Yanbu continue to recover, the global crude oil supply risk premium could contract further.

Consequently, current oil prices are effectively caught in a tug-of-war between opposing forces. On one hand, factors such as US-Iran engagement, the restoration of Saudi oil facilities, and expectations of improved shipping conditions in the Strait of Hormuz are prompting the market to lower the risk premium priced in for extreme supply disruptions. On the other hand, Saudi energy infrastructure remains vulnerable to potential attacks, and shipping security in the Strait of Hormuz and the Red Sea has not yet fully returned to normal. As a result, oil prices are prone to significant short-term volatility rather than establishing a clear, one-sided trend.

In terms of market sentiment, long positions in crude oil—previously built on expectations of supply disruptions—are undergoing a repricing. The rapid retreat of WTI prices from above $100 to around $90 indicates that the market has significantly reduced the geopolitical risk premium. Meanwhile, should the diplomatic process face setbacks or Saudi energy infrastructure suffer further substantial damage, profit-taking by short sellers could rapidly amplify any rebound in oil prices. The core dynamic driving oil prices has shifted from "whether supply will be disrupted" to "whether the pace of supply recovery can outpace the escalation of risks."

Conclusion:

WTI crude has retreated from above $100 to the vicinity of $89, reflecting a rapid unwinding of the geopolitical supply premium that had previously built up. Signals of easing tensions between the US and Iran, the gradual restoration of Saudi oil pipeline operations, and an unexpected rise in US crude inventories have all exerted downward pressure on prices. However, uncertainties regarding the security of Saudi energy facilities, Red Sea shipping, and transit through the Strait of Hormuz mean that oil prices have not yet fully shaken off supply-side risks. In the coming trading sessions, the $92 and $90 levels will serve as critical zones for gauging WTI's short-term strength or weakness. Should supply restoration and diplomatic progress continue to improve, the likelihood of prices seeking further support near $85 will increase; conversely, if supply risks in the Middle East re-escalate, the previous risk premium could quickly return. For the market, the key focus is not any single event, but rather the interplay between the pace of supply recovery and the speed at which geopolitical risks might deteriorate again.

Fed officials signal a hawkish stance; US Dollar Index targets the 102–103 range

There is a nearly 90% probability of at least one more Federal Reserve rate hike this year. Fed officials—including Musalem, Goolsbee, and Barkin—have recently adopted a hawkish tone; Goolsbee warned that policy could become "more aggressive and increasingly front-loaded," reinforcing expectations for tightening and bolstering the dollar's interest rate advantage.

According to the CME FedWatch Tool, the probability of the Federal Reserve raising rates at least once more this year stands near 90%. Recent statements from multiple Fed officials highlighting upside inflation risks stemming from supply and demand shocks—and the consequent need for further rate hikes—have strengthened the US dollar. Fed Officials Signal Further Tightening, Reinforcing Expectations

Federal Reserve officials are reinforcing the prospect of additional monetary tightening. St. Louis Fed President Musalem (a non-voting member this year) warned that "further rate hikes may be needed to curb inflation," while Chicago Fed President Goolsbee (a voting member in 2027) cautioned that if demand is deemed to be overheating, policy could shift to become "more aggressive and increasingly front-loaded."

The hawkish guidance issued by both current and future FOMC participants helps sustain the perception that "more tightening is on the way," supporting the U.S. advantage in growth and yields relative to the euro, British pound, and Japanese yen. The flurry of official comments indicates that policymakers remain highly vigilant regarding inflation stickiness and are reluctant to declare victory prematurely. This consistent signaling across voting and non-voting members reinforces market expectations regarding the policy path, keeping the U.S. dollar relatively strong against major currencies and continuing to attract capital flows seeking yield differentials.

Barkin Echoes Sentiment; Impact of Rate Hikes Awaited

On Tuesday, Richmond Fed President Barkin stated, "Last week's rate hike will help restore price stability, and we will observe whether further hikes are needed." This statement echoes the remarks of Musalem and Goolsbee, demonstrating a broad consensus within the Fed on the direction of further tightening. Market pricing indicates a nearly 90% probability of at least one more rate hike, an expectation that directly supports the dollar.

Barkin emphasized a data-dependent approach, acknowledging the impact of actions already taken while retaining the flexibility to adjust based on subsequent inflation and employment data. His cautious wording avoided explicit commitments but remained consistent with the overall hawkish tone, further solidifying the market view that the tightening cycle is not yet over.

Consequently, investors continue to price in a higher terminal rate; supported by these interest rate expectations, the dollar remains strong, exerting persistent pressure on other major currencies. US Dollar Index Hits New High Since Late July; Interest Rate Differential Advantage Drives Momentum

The US Dollar Index has risen to around 100.70, marking its highest level since late July. The Federal Reserve's hawkish stance contrasts with the policy paths of the European Central Bank and the Bank of Japan, bolstering the dollar's advantage regarding interest rate differentials.

Goolsbee’s warning that policy could become "more aggressive and increasingly front-loaded" has further reinforced market expectations that the Fed might accelerate the pace of tightening. Should subsequent US economic data support this view, the dollar is likely to remain well-supported. Widening interest rate differentials have enhanced the appeal of US assets, driving capital flows from lower-yielding markets—such as the Eurozone and Japan—into the US, thereby pushing the dollar index higher.

In the short term, as long as the Fed maintains a hawkish tone while other major central banks remain relatively cautious, the dollar's relative advantage is likely to persist, exerting downward pressure on non-yielding assets like gold and silver, as well as on emerging market currencies.

Conclusion:

The US Dollar Index has climbed to a recent high near 100.70, underpinned by both the Fed's hawkish rhetoric and expectations of further rate hikes. Statements from officials such as Musalem, Goolsbee, and Barkin have fostered a broad consensus, with market pricing indicating a nearly 90% probability of at least one more rate hike. Goolsbee’s warning regarding potentially "more aggressive and increasingly front-loaded" policy has provided additional upward momentum for the dollar.

Moving forward, attention should be focused on US PMI, inflation, and employment data, as well as further comments from Fed officials, to gauge whether the case for rate hikes will strengthen. If the data supports the Fed's hawkish stance, the dollar may continue to test higher levels; conversely, if the data weakens, rate-hike expectations could cool, leaving the dollar vulnerable to a pullback.

Overview of Key Overseas Economic Events and Developments This Week:

Monday (September 28): US Dallas Fed Manufacturing Index (September); Bank of Japan releases minutes from July monetary policy meeting; Bank of England Deputy Governor Ramsden speaks on quantitative tightening.

Tuesday (September 29): Reserve Bank of Australia (RBA) cash rate decision; Eurozone Consumer Confidence Index (September, final); Eurozone Services Sentiment Index (September); US Conference Board Consumer Confidence Index (September); RBA Governor Bullock holds monetary policy press conference.

Wednesday (September 30): Japan Retail Sales (August, seasonally adjusted, month-on-month); UK GDP (Q2, final, quarter-on-quarter); US ADP Employment Change (September, in thousands); US Personal Consumption Expenditures (PCE) Price Index (August, month-on-month); US Real GDP (Q2, final, annualized quarter-on-quarter); US Wholesale Inventories (August, preliminary, month-on-month).

Thursday (October 01): Australia Goods and Services Trade Balance (August, seasonally adjusted, in millions of AUD); Eurozone Manufacturing PMI (September, final); UK Manufacturing PMI (September, final); Eurozone Unemployment Rate (August); US ISM Manufacturing PMI (September); Bank of Japan releases summary of opinions from September monetary policy meeting; Bank of England Governor Bailey speaks.

Friday (October 02): Japan Unemployment Rate (August); US Unemployment Rate (September); US Non-farm Payrolls Change (September, seasonally adjusted, in thousands); US Durable Goods Orders (August, revised, month-on-month).

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