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The USD’s post-FOMC rally faces a crucial test from this week’s inflation and jobs data. Fed Chairman Kevin Warsh may have abandoned explicit forward guidance, but he cannot prevent other Fed officials from encouraging conviction in further tightening more than they intended. With markets pricing in 3-4 hikes through 2027, more than the two rises pencilled in the Summary of Economic Projections, incoming data could expose the excessive hawkishness embedded in the USD.
Wednesday’s August PCE inflation is expected to rise 0.4% MoM from 0.2% in the previous month, while core inflation is seen at 0.3% from 0.2%. Friday’s nonfarm payrolls are expected to slip to 90k, down from August’s surprise jump to 127k. The unemployment rate is seen unchanged at 4.1% for a third month.
US Treasury Secretary Scott Bessent should return attention to contain long-term borrowing costs. The US Treasury 30Y yield hit 5.50% for the first time since mid-2024, up 21 bps since Bessent’s August 18 announcement to expand Treasury buybacks. Bessent became more critical of the unanimous Fed hike on September 16, after the 10Y yield rose above 5% for the first time since 2007. He is again concerned about the interaction between higher US long bond yields and renewed JPY weakness. Hence, markets may be overly confident about pricing in a back-to-back Fed hike at the October 28 FOMC meeting, just before the November 3 US midterm elections.
Concerns about joint intervention have resurfaced after USD/JPY declined 1% last Friday near the 160 level. Bessent stated that the US and Japan agreed about the “desirability of a strong JPY that reflects Japan’s strong economic fundamentals.” According to Japanese Finance Minister Satsuki Katayama, President Donald Trump also expressed concern about the JPY’s weakness to Prime Minister Sanae Takaichi at the Japan-US Summit on the sidelines of the United Nations General Assembly.
AUD/USD is near its psychological support level of 0.70. The Reserve Bank of Australia is expected to deliver its fourth 25-bps hike to 4.60% on September 29. RBA Governor Michele Bullock testified to parliament on September 18 that financial conditions were not restrictive enough to address the upside risks in energy-led inflation. The labour market was slightly tighter than full employment despite a slowdown in domestic economic growth. She downplayed property-sector risks, noting that homeowners in negative equity remain very limited in number and adding that monetary policy does not target housing prices.
Quote of the Day
“Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing.”
Abraham Lincoln
Today in history
Indonesia officially became the 60th member of the United Nations on September 28, 1950.
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Related Insights
- USD Rates: Bill financing getting expensive28 Sep 2026
- IDR and INR rates: Domestic edge 25 Sep 2026
- North Asia rates: The high-beta plays 25 Sep 2026
Related Insights
- USD Rates: Bill financing getting expensive28 Sep 2026
- IDR and INR rates: Domestic edge 25 Sep 2026
- North Asia rates: The high-beta plays 25 Sep 2026