Good morning traders from a mostly cloudy 17°C Amsterdam, with a breezy and showery start around IntelliTrade HQ and temperatures struggling much beyond 19°C today. Coffee is definitely staying on the desk this morning. Friday gave the dollar its strongest policy support in weeks, and now fresh U.S.-Iran fighting has pushed Brent straight back above $90. That is not exactly the inflation relief the Fed wanted heading into payroll week.
Overall Market Sentiment:
The mood is defensive.
Asian equities are lower, oil is sharply higher, short-term U.S. yields remain elevated and the dollar is holding close to a two-week high after Friday’s Jackson Hole repricing.
The cleaner read for me is that the market has moved from worrying about weak U.S. employment back toward worrying about inflation again, at least temporarily.
Warsh gave the Fed side of that argument credibility on Friday. Oil above $90 is giving it another push this morning.
My actual view today is that the dollar starts the week with the stronger hand, but I would not treat that as settled before Friday’s employment report.
The mistake here would be thinking geopolitical oil strength and a hawkish Fed speech have somehow erased the weakness we already saw in the labour market.
They have not.
Geopolitics:
The U.S.-Iran conflict has moved back into the centre of the market after fresh military exchanges around the Gulf.
U.S. forces struck Iranian launchers on Larak Island, while Iran retaliated against U.S. forces in the region. There have also been claims around damage to Iran’s Kharg oil infrastructure, but those claims remain unconfirmed.
Brent has responded by jumping back above $90.
That matters because the market spent most of last week pricing some improvement in Hormuz supply conditions. This morning reminds us how quickly that premium can come back.
For FX, higher oil supports the inflation side of the dollar story while creating a more difficult backdrop for large energy importers such as Europe and Japan.
Macro Calendar:
Today
- China official PMIs: Manufacturing improved to 49.8 from 49.2, but it remains below the 50 line associated with expansion. The bigger problem is that non-manufacturing activity stayed around 49.0, so China is still showing stronger export and technology activity than domestic demand.
- G20 finance ministers and central bankers: The meeting begins with inflation, trade, Iran, currency volatility and high global bond yields all on the agenda. I would not expect one headline to settle any of those issues, but comments around the yen, oil supply and trade policy can matter.
- Oil and Gulf developments: This belongs on today’s calendar whether we like it or not. Brent has jumped back above $90 following renewed fighting, putting energy inflation straight back into the rates discussion.
The rest of this week
- Tuesday, euro-area CPI and U.S. JOLTS: Europe gets an important inflation test while the U.S. gets another labour-market read. Job openings matter because markets need to know whether July’s weak payroll report was unusual or part of a broader deterioration in labour demand.
- Tuesday, U.S. ISM manufacturing: China’s factories are still struggling to generate broad momentum. U.S. manufacturing will show whether technology and AI investment are enough to keep American industry moving despite high borrowing costs.
- Wednesday, RBNZ and Bank of Canada: New Zealand is expected to see another increase as inflation remains uncomfortable, even with unemployment elevated. Canada is expected to stay unchanged as persistent inflation meets serious uncertainty around its trade relationship with the United States.
- Wednesday, Australian GDP and U.S. private employment: Australia needs growth to help settle the argument between hot inflation and weaker labour data. U.S. private employment gives us another clue before Friday.
- Thursday, U.S. jobless claims and services activity: Services have been the stronger part of the American economy. A weaker services reading alongside softer labour data would make the Fed’s renewed inflation focus much harder to maintain.
- Friday, U.S. nonfarm payrolls: This is the real event of the week. Markets are looking for a modest employment recovery after July’s 23,000 decline, but wages, unemployment, revisions and hours worked matter just as much as the headline.
Currency Outlooks:
🔺 USD - Warsh has support from oil now
The dollar index is around 99.6, close to its strongest region in two weeks, with EUR/USD near 1.1590 and USD/JPY hovering around 160.
Friday rebuilt the policy argument.
Markets now see the probability of another September Fed increase at roughly 57%, compared with around 35% before Jackson Hole. The two-year Treasury yield is back near 4.34%, its highest region in more than a month.
Then oil jumps almost 3% this morning.
That matters because the Fed is not only looking backward at July inflation anymore. A renewed energy shock raises the risk that headline inflation and expectations become more uncomfortable again.
Risks lean toward USD strength in the immediate picture.
That bias weakens quickly if this week’s labour data confirm that July was not an isolated disappointment.
⚖️ EUR - Better European data meet another oil shock
EUR/USD is around 1.1590, recovering slightly this morning after Friday’s sharp decline.
The euro still has a better domestic story than it had earlier in the summer. Business activity has improved, German data have stabilised and Tuesday’s inflation report could reinforce the argument for the ECB to remain restrictive.
Then Brent goes back above $90.
That is the problem.
Europe is still a large net energy importer. Expensive crude raises business costs and household inflation without providing stronger domestic demand.
The cleaner read for me is balanced.
EUR can benefit if euro-area inflation keeps the ECB firm, but another sustained oil move weakens the growth side at exactly the wrong time.
⚖️ GBP - Sterling needs something beyond dollar weakness now
GBP/USD is holding around 1.3540, close to where the pair finished Friday.
The pound had a good August because UK activity remained relatively resilient and the BoE retained more inflation concern than several other central banks.
That relative advantage is less obvious now.
U.S. rate expectations have moved higher again, while UK wage and services inflation have gradually cooled.
There is no major British release today, so the dollar and global yields should dominate.
Risks look balanced.
Sterling still has decent domestic support, but it needs more than another general decline in USD if the Fed tightening story remains alive.
🔻 CAD - Higher oil helps, but trade risk still wins the argument
CAD should normally like Brent jumping back above $90.
Canada exports energy, its recent labour-market numbers were relatively firm and higher crude improves the terms-of-trade side of the currency story.
The problem remains U.S.-Canada trade.
Tariffs and uncertainty around one of the world’s most integrated trading relationships create a direct growth risk that one strong day in oil does not erase.
Wednesday’s Bank of Canada decision matters because policymakers are dealing with inflation near the upper part of their comfort zone while trade uncertainty argues for patience.
Risks still lean toward CAD weakness overall.
The bias improves if the BoC sounds confident that domestic resilience can absorb the trade shock.
⚖️ CHF - Defensive demand is back, but USD has the rate advantage
Today’s backdrop normally suits CHF.
Equities are weaker, geopolitical tensions are higher and oil is rising. Those conditions support defensive currencies.
But the dollar now has that same defensive argument combined with renewed Fed tightening expectations and much higher short-term yields.
That keeps CHF more interesting as a defensive currency against cyclical peers than against USD itself.
Risks are mixed.
A deeper geopolitical escalation strengthens the franc’s haven side, while a firm U.S. labour week keeps the dollar’s yield advantage difficult to overcome.
⚖️ JPY - 160 is back, and the market still looks uncomfortable there
USD/JPY is hovering around 159.8 to 160.0, after moving through 160 on Friday.
The fundamental pressure is obvious.
U.S. short-term yields jumped after Jackson Hole, the Fed tightening probability increased and the rate gap remains very large.
Higher oil is another negative for Japan because the country imports most of its energy.
But this is not simply another weak-yen environment.
Japanese bond yields are also climbing, the 10-year JGB yield is near its highest level since the 1990s and the BOJ is increasingly expected to continue normalising policy.
Authorities have also already demonstrated that they are willing to intervene.
The cleaner read for me is mixed.
The yen remains under fundamental pressure, but the risk around further weakness becomes increasingly policy-sensitive above the 160 area.
⚖️ AUD - China is not giving Australia much help
AUD/USD is around 0.7160, holding reasonably well despite the defensive market mood.
Australia has its own internal policy argument.
Inflation surprised higher last week, keeping the RBA uncomfortable, but employment weakened enough to make another policy move far from automatic.
Now China is giving us another mixed picture.
Manufacturing improved but remains in contraction, while non-manufacturing activity is weak. That means Australia is still relying more on export, technology and infrastructure demand than a broad Chinese domestic recovery.
Wednesday’s GDP report matters.
Risks remain balanced until growth tells us whether the RBA can keep focusing on inflation without doing too much damage to activity.
🔺 NZD - The RBNZ gives the kiwi its own catalyst
NZD/USD is around 0.5920, holding relatively steady ahead of Wednesday’s central-bank decision.
This is finally a week where the New Zealand dollar has something properly domestic to focus on.
The RBNZ is expected to tighten again because inflation remains too high.
The problem is the labour market.
Unemployment is sitting at 5.6%, wage pressure has cooled and the economy has much more spare capacity than an inflation-focused central bank would normally want.
That makes the communication more important than the decision itself.
Risks lean modestly toward NZD strength because the immediate policy direction remains firm.
That tilt weakens if policymakers make clear that further restriction becomes much harder from here.
Cross-Asset Wrap:
- 🪙 Gold: Gold is trading around $4,400 to $4,430, extending Friday’s decline after Warsh pushed Fed tightening expectations and short-term Treasury yields sharply higher. USD and real yields are the main pressure points, while renewed Gulf fighting provides some haven support but has not been enough to offset the rate move. Watch whether labour data later this week challenge the hawkish Fed repricing and pull real yields back down. [USD] [REAL YIELDS] [FED]
- 🥈 Silver: XAG/USD is around $66.00 to $66.30, also softer after last week’s sharp post-Jackson Hole move. Higher U.S. yields and the firmer dollar are weighing on the monetary side, while China’s sub-50 manufacturing PMI keeps the industrial-demand picture mixed despite stronger AI-related investment. Watch the U.S. and global manufacturing data for whether industrial momentum improves enough to provide support. [USD] [YIELDS] [INDUSTRIAL DEMAND]
- 🛢 Oil (Brent): Brent is trading around $90.50 to $90.70 per barrel, up almost 3% after fresh U.S.-Iran military exchanges reversed part of last week’s decline. Renewed supply fears around the Strait of Hormuz are the main driver, while recovering Gulf export volumes provide some offset. Watch physical shipping flows and confirmed infrastructure damage rather than unverified claims around Iranian oil facilities. [SUPPLY] [GEOPOLITICS] [INFLATION]
- 📈 Stocks: Asian equities are under pressure, with Japan’s Nikkei down roughly 1.6%, South Korea around 2.2% lower and the wider Asia-Pacific index outside Japan falling about 1.2%. Higher oil, renewed Fed tightening expectations and elevated bond yields are creating a tougher valuation backdrop, with European and U.S. futures also modestly softer. Watch whether the pressure remains a rates-and-energy adjustment or starts turning into a wider growth concern. [FED] [YIELDS] [RISK]
- ₿ Crypto: Bitcoin is trading around $77,500 to $78,000, consolidating after the sharp Friday decline that followed Jackson Hole. Higher real yields and the firmer dollar have weakened the liquidity backdrop, while August’s wider fiscal and currency-diversification story still provides some support underneath. Watch whether this week’s labour data reinforce September Fed tightening expectations or pull liquidity expectations back in the opposite direction. [LIQUIDITY] [REAL YIELDS] [RISK]
The main thing I care about today is how quickly the market story changed again.
Last Monday, the dollar was struggling because investors were questioning U.S. policy credibility.
Friday, Warsh restored some of that credibility.
Today, oil gives him another inflation argument.
That is a meaningful shift.
The Fed can now look at inflation above target, Brent back above $90 and relatively strong U.S. services activity and say there is still a reason to remain restrictive.
But that is only half the economy.
The labour market still has a problem.
July lost 23,000 jobs.
Earlier months were revised lower.
Consumer confidence has weakened.
Housing remains under real pressure from expensive financing.
That is why I would not overcomplicate Friday’s payroll report.
It has veto power over the current Fed narrative.
If employment rebounds and unemployment remains stable, Warsh’s message gets much stronger.
Then markets can say July was unusually weak while inflation is still too high.
That is a much cleaner argument for keeping September tightening alive.
If employment disappoints again, the whole thing gets awkward.
Then the Fed would be talking about higher rates while receiving repeated evidence that one half of its mandate is deteriorating.
That is a very different policy problem.
There is also a geopolitical trap this morning.
Oil has jumped back above $90 because the U.S. and Iran are exchanging fire again.
That supports inflation expectations.
But I would not treat every military headline as a permanent oil shock.
We already saw last week how quickly Brent can move lower when markets believe shipping conditions might improve.
The part that matters is physical supply.
Are Gulf exports actually disrupted?
Does commercial traffic through Hormuz deteriorate again?
Is production infrastructure genuinely damaged?
Those answers matter more than the loudest headline of the day.
China is another thing I would not misunderstand.
Manufacturing at 49.8 is an improvement.
It is still contraction.
And non-manufacturing at 49.0 tells us domestic activity remains weak.
That matters for AUD and NZD because a real Chinese recovery needs more than strong exports and technology investment.
Wednesday then gives us something completely different.
The RBNZ is expected to tighten into a labour market with 5.6% unemployment.
The Bank of Canada is expected to remain patient while trade uncertainty weighs on growth.
Australia gets GDP after hot inflation and weak jobs.
So this is not a week where I would reduce everything to the dollar.
My actual view today is that USD starts with a firmer bias.
Warsh restored the Fed’s inflation credibility.
Oil has moved back in a direction that supports that message.
Short-term Treasury yields remain elevated.
But the dollar’s advantage is conditional now.
Friday has to show that the labour market can live with the Fed staying restrictive.
EUR has better European activity but another energy problem.
GBP remains resilient without the same clear rate advantage it had earlier in August.
CAD is still dealing with trade risk.
JPY is fundamentally weak but politically sensitive around 160.
AUD has conflicting inflation and employment data.
NZD gets the clearest central-bank catalyst of the week.
The mistake here would be deciding on Monday that Jackson Hole settled September.
It did not.
Warsh told us what the Fed wants to do if inflation stays high.
Payrolls tell us whether the economy gives him permission.
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This is general, educational macro and FX commentary. It is not investment advice and not a trading signal.
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