Good morning traders from a rainy 18°C Amsterdam, where a few showers are moving through around IntelliTrade HQ before things brighten a little and temperatures reach roughly 22°C later today. Sunday coffee is firmly on the desk because Friday changed the market again. Kevin Warsh put inflation back at the centre of the Fed story, the dollar had its strongest day in months, USD/JPY pushed through 160, and gold gave back a big chunk of its recent surge. Now we get the data that can either validate all of that or make Friday look premature.
Overall Market Sentiment:
The market starts the week cautious and slightly defensive.
Friday reminded everyone that the Fed is not comfortable with inflation sitting above target. Short-term Treasury yields jumped, the dollar recovered sharply and rate-sensitive assets came under pressure. The problem is that employment has already weakened, so the market now has two very different macro stories fighting for control.
That is the regime this week: inflation says the Fed may have more work to do, while labour data still say the economy cannot absorb unlimited tightening.
Weekly Thesis:
The dominant question is simple: was Friday the start of a proper dollar recovery, or does this week’s U.S. jobs data expose the limit of the Fed’s hawkish message? My base case is that USD stays firmer early in the week, but the move becomes much harder to extend unless employment stabilises after July’s decline. Friday’s payroll report is the real test. NZD and CAD also have central-bank decisions on Wednesday, while euro-area inflation can give EUR its own policy support instead of leaving every currency dependent on the dollar.
Scenario Map:
- Base case, 50%: August payrolls recover modestly but remain soft by historical standards, keeping a September Fed increase possible without making it obvious. USD stays relatively supported, yields remain firm and FX performance becomes selective rather than a broad dollar move.
- Risk-on scenario, 25%: U.S. labour data weaken again, job openings soften and services activity loses momentum. Fed tightening expectations fade, Treasury yields retreat, the dollar gives back part of Friday’s advance and equities regain some relief from financing costs.
- Risk-off escalation scenario, 25%: U.S. jobs rebound strongly while inflation-sensitive data remain firm, or oil reverses higher on renewed Middle East disruption. September tightening expectations strengthen, yields push higher and rate-sensitive equities and precious metals face another difficult week.
What Changed Since Last Week:
Warsh changed the burden of proof on Friday. Markets moved from roughly one-third odds of a September Fed increase to more than 50%, the dollar index jumped toward 99.7 and the two-year Treasury yield moved up to around 4.36%.
That weakened last Sunday’s softer-dollar thesis.
But it did not destroy it. Friday’s move now needs support from the labour market, because another weak employment report would make it difficult for the Fed to lean harder on inflation without acknowledging the growth cost.
Geopolitics:
Brent finished Friday at $89.31, down more than 5% across the week as markets became more hopeful that some shipping through the Strait of Hormuz could gradually normalise.
I would not call the situation solved. Traffic remains inconsistent, Gulf exports are still below pre-war levels and negotiations can reverse quickly.
For this week, the cleaner read is that oil is no longer adding the same inflation pressure it was two weeks ago. That helps Europe and Japan in particular, but another geopolitical escalation would change that very quickly.
Macro Calendar:
The week ahead
- Monday, China PMIs: China starts the week with another update on manufacturing and services. This matters most for AUD and NZD because both currencies still need stronger Chinese domestic demand to complement their own rate stories.
- Tuesday, euro-area CPI and U.S. JOLTS/ISM manufacturing: Euro inflation could move toward the low-3% area, which would keep an ECB increase firmly in the conversation. In the U.S., job openings and manufacturing provide the first test of whether July’s employment weakness was isolated or part of something broader.
- Wednesday, RBNZ and Bank of Canada: This is a major central-bank day. New Zealand markets expect the RBNZ to lift the OCR from 2.50% to 2.75% despite a weak labour market, while Canada is expected to keep its rate at 2.25% as trade uncertainty complicates the outlook.
- Wednesday, U.S. ADP employment and Australian GDP: The U.S. private-employment estimate gives markets another labour read before Friday. Australia’s GDP matters because hot inflation and weak employment have left the RBA with conflicting signals.
- Thursday, U.S. jobless claims and services activity: Services have been one of the stronger parts of the U.S. economy. If services and employment both weaken, Friday’s payroll number becomes even more important for Fed expectations.
- Friday, U.S. nonfarm payrolls: This is the week’s main event. Current expectations are for only a modest employment recovery of roughly 45,000 jobs after July’s decline. The mistake would be focusing only on the headline. Unemployment, wages, revisions and hours worked will tell us whether the labour market is stabilising or genuinely deteriorating.
Currency Outlooks:
🔺 USD - Warsh put inflation back in charge, for now
The dollar index finished Friday around 99.7, while EUR/USD dropped toward 1.1580, GBP/USD fell toward 1.3530 and USD/JPY moved above 160.
Friday was important because the dollar finally reacted normally to a Fed inflation warning.
Warsh basically told markets that if the Fed cannot become confident inflation is returning toward 2%, policymakers may still have work to do. September tightening expectations jumped immediately.
That rebuilds some of the dollar policy advantage we had been questioning for most of August.
But I would not overcomplicate one speech into a full macro reversal.
July payrolls were weak. Consumer confidence has softened. Housing is struggling. Retail activity cooled. Those data have not disappeared because Warsh sounded uncomfortable with inflation.
So risks lean toward USD strength early in the week, but Friday decides whether that strength has proper economic backing.
A decent employment rebound keeps the Fed argument alive.
Another poor labour report puts the central bank straight back into the inflation-versus-employment trap.
⚖️ EUR - Inflation can give Europe its own policy story
EUR/USD finished around 1.1580, snapping some of the momentum that had pushed the pair toward 1.17 earlier in August.
The euro now has a more interesting domestic setup.
Recent business surveys improved. German activity has looked less fragile. Manufacturing is finally showing some life.
Now Tuesday brings inflation.
If euro-area CPI pushes toward 3.3%, markets have to take the possibility of another ECB increase seriously. That could give EUR its own rate support instead of leaving the currency entirely dependent on what the Fed does.
Lower Brent also helps.
The cleaner read for me is balanced. A firmer inflation report can support the euro, but if U.S. jobs stabilise and Treasury yields keep climbing, the dollar side remains difficult to fight.
⚖️ GBP - Sterling has lost some of its rate advantage
GBP/USD finished around 1.3530, ending a four-week run of gains.
Sterling had a decent August because UK activity held up and the Bank of England still looked uncomfortable with inflation.
That policy story has cooled a bit.
Wages have slowed, services inflation has eased and markets have reduced expectations for additional BoE restriction this year.
There is also no huge UK macro event this week to reset the picture.
That makes GBP more dependent on the global dollar and yield story.
My tilt is balanced.
The pound still has a reasonably resilient services economy underneath it, but the domestic rate advantage is not as clean as it looked a couple of weeks ago.
🔻 CAD - Trade uncertainty is now stronger than the oil cushion
USD/CAD finished near 1.39, with the Canadian dollar recording its weakest week in roughly two months.
I think the CAD story has become much simpler.
The labour market improved earlier in August, and Canada’s second-quarter economy rebounded. Those are useful positives.
But the trade relationship with the United States has deteriorated sharply, new tariffs have arrived and Brent just dropped more than 5% over the week.
Wednesday’s Bank of Canada decision therefore comes at an awkward moment.
The bank is widely expected to keep rates at 2.25%. Inflation is high enough that policymakers cannot become too relaxed, but trade uncertainty makes additional restriction difficult to justify.
Risks lean toward CAD weakness while the trade dispute remains unresolved.
The bias improves if the central bank sounds confident about domestic resilience or if Washington and Ottawa return to serious negotiations.
⚖️ CHF - Still useful defensively, but Friday restored the dollar’s yield advantage
USD/CHF finished close to 0.81, recovering sharply with the wider dollar move.
The franc still has a reasonable defensive argument.
There are concerns around global debt, Middle East geopolitics and the predictability of international financial cooperation. Those issues have not disappeared.
But Friday reminded us that USD can still offer something CHF does not: a much stronger short-term yield story when Fed tightening expectations rise.
So the cleaner read is balanced.
CHF becomes stronger again if U.S. employment disappoints and markets start questioning whether the Fed can actually follow through on Friday’s rhetoric.
🔺 JPY - 160 is now a global financial-stability issue
USD/JPY finished around 160.1, and I think this is one of the most important FX areas heading into the new week.
Friday’s dollar rally pushed the pair back through 160 despite Tokyo inflation accelerating again and markets expecting further BOJ normalisation.
Normally that would simply tell us the U.S. yield advantage is still too strong.
But there is more policy baggage now.
Japanese authorities have already intervened. U.S. authorities participated in that operation. And over the weekend, the U.S. Treasury made clear that disorderly yen weakness can create wider financial-stability problems through forced position unwinding.
That matters.
The cleaner read for me is that JPY risks lean toward strength from current levels, even though the fundamental rate gap remains a problem.
I am not saying the yen suddenly has a clean macro advantage.
It does not.
The point is that further weakness is becoming increasingly uncomfortable for both Japanese and U.S. policymakers. That makes 160 very different from an ordinary reference area.
⚖️ AUD - Hot inflation and weak jobs now need GDP to break the tie
AUD enters the week with one of the most conflicted domestic stories.
Inflation surprised higher, with trimmed-mean inflation running around 3.6%.
That supports the RBA’s concern that price pressure is still too high.
Then employment fell, unemployment rose to 4.5% and hours worked weakened.
That argues for patience.
Wednesday’s GDP report can help break the tie.
If growth remains resilient, the RBA can stay focused on inflation. If activity looks weak as well, the hurdle for additional restriction gets much higher.
China’s PMIs matter too because AUD still trades partly as a China and global-growth currency.
Risks are balanced for me. Australia needs domestic growth confirmation rather than another general move in USD.
🔺 NZD - The RBNZ finally gets its moment
NZD is probably the most interesting non-dollar central-bank currency this week.
The RBNZ is expected to raise the OCR from 2.50% to 2.75% on Wednesday as it deals with inflation running above its target range.
That gives the kiwi a much clearer immediate policy catalyst than it has had for weeks.
But there is a trap.
New Zealand unemployment is 5.6%, a decade high. Wage growth is soft. The economy has plenty of labour-market slack.
So Wednesday is not really about whether 25 basis points arrive.
The more important question is what comes next.
If policymakers still sound worried that inflation can become embedded, risks lean toward NZD strength.
If the message is effectively that one increase is enough while the bank watches the labour market, the rate advantage becomes less impressive.
This is one currency where the guidance matters more than the headline decision.
Cross-Asset Wrap:
- 🪙 Gold: Gold is around $4,450 to $4,460 per ounce after falling more than 3% on Friday as Warsh’s inflation warning pushed the dollar and Treasury yields higher. The immediate drivers are USD and real yields, while fiscal concerns and geopolitical uncertainty still provide medium-term support underneath. Watch Friday’s employment report because another weak labour number would challenge how aggressively markets repriced the Fed after Jackson Hole. [USD] [REAL YIELDS] [FED]
- 🥈 Silver: XAG/USD is around $66.30, after dropping more than 4% on Friday and ending its recent push toward $70. Higher yields and a stronger dollar hurt the monetary side of silver, while Nvidia’s strong outlook continues to support the technology and industrial-demand story underneath. Watch China PMIs and U.S. manufacturing data for whether the physical-demand side remains strong enough to offset rate pressure. [USD] [YIELDS] [INDUSTRIAL DEMAND]
- 🛢 Oil (Brent): Brent settled Friday at $89.31 per barrel, down more than 5% for the week and recording its first weekly decline in three weeks. Hopes for improved Hormuz shipping flows and potential additional Venezuelan supply reduced the immediate supply premium, while the wider Iran conflict still keeps geopolitical risk inside the price. Watch actual tanker flows rather than headlines around negotiations. [SUPPLY] [GEOPOLITICS] [INFLATION]
- 📈 Stocks: The S&P 500 finished Friday at 7,711.76, down 0.25% on the session but still up roughly 0.5% for the week, while the Nasdaq closed at 26,402.42 after a 0.52% Friday decline. Warsh’s inflation message hurt rate-sensitive technology and smaller companies, although Nvidia’s strong earnings outlook kept the broader AI investment story alive. Watch whether this week’s labour data push yields high enough to challenge valuations again. [FED] [YIELDS] [TECHNOLOGY]
- ₿ Crypto: Bitcoin is trading around $78,200 this Sunday after falling sharply on Friday when Fed tightening expectations jumped, then stabilising over the weekend. Liquidity expectations and real yields remain the main macro drivers, while the wider fiscal and currency-diversification narrative continues to provide support after August’s large rally. Watch whether payrolls reinforce the hawkish Jackson Hole repricing or pull short-term yields back down. [LIQUIDITY] [REAL YIELDS] [RISK]
The main thing I care about this week is that Warsh finally made the Fed sound willing to act.
That had been missing.
For most of August, markets kept hearing inflation warnings but looking at weaker employment, softer retail spending and improving CPI and PPI.
The result was obvious.
Traders kept reducing the probability of another increase.
Friday changed that.
Warsh effectively told the market that 3%-plus underlying inflation is not something the Fed can simply learn to live with.
That matters for credibility.
And the dollar reacted.
So did the two-year yield.
So did gold.
So did Bitcoin.
That was a real macro move.
But this is where traders can get trapped.
A central bank can say it is prepared to tighten.
The economy still has to give it room to do it.
Friday’s payroll report is therefore more important to me than another Fed speech this week.
If August employment rebounds enough to show July was unusually weak, then Friday’s Jackson Hole message gets much more weight.
The Fed can say inflation is still too high, employment remains stable enough and financial conditions are not especially restrictive.
That is a much cleaner case for keeping September live.
If payrolls disappoint again, everything changes.
Then we are looking at consecutive evidence of labour-market weakness while the Fed talks about another increase.
That would put the employment side of the mandate directly against the inflation side.
I would not overcomplicate this with one headline payroll number either.
Suppose the economy adds around 45,000 jobs.
Fine.
What happened to unemployment?
What happened to wages?
Did previous months get revised again?
Are hours worked falling?
Those details tell us whether the labour market is genuinely stabilising or just printing one slightly better number after a bad July.
There is also a bigger FX point this week.
Not every currency should react to U.S. payrolls in the same way.
NZD has its own central-bank decision.
CAD has its own central-bank decision plus a serious trade problem.
EUR has inflation that can strengthen the ECB argument.
AUD has GDP sitting between hot inflation and weak jobs.
JPY is back above 160 with intervention and now explicit financial-stability concerns around further weakness.
That is why I expect a more selective week.
The dollar can strengthen without every USD pair moving equally.
JPY is the currency I would not misunderstand here.
USD/JPY above 160 after a hawkish Fed speech looks like a straightforward yield story.
But policymakers on both sides have now demonstrated that they consider disorderly yen weakness a broader problem.
That changes the risk around the currency even if it does not immediately change the interest-rate gap.
NZD is the other one worth separating from the pack.
The RBNZ is expected to tighten while New Zealand unemployment sits at 5.6%.
That is not a comfortable policy mix.
Inflation says one thing.
Employment says another.
Sound familiar?
It is basically a smaller version of the problem facing the Fed.
My actual view this week is that the dollar starts with the stronger hand after Jackson Hole.
Warsh restored some inflation-fighting credibility.
Short-term yields responded.
Markets put a September increase properly back on the table.
But I do not think Friday gave USD a free pass for the rest of September.
The jobs report still has veto power.
A stabilising labour market makes the dollar recovery much more convincing.
Another weak report puts the Fed straight back into the trap it spent most of August trying to avoid.
That is the part I would not overcomplicate.
Friday told us what the Fed wants to do if inflation stays high.
This week tells us whether the economy will actually let it.
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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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