In the week ahead: FOMC, BOE and BOJ Policy Decisions, Carnival Corp Earnings

EUR/USD fell toward 1.1555 in early Asian trading on Monday as markets increased expectations for a Federal Reserve rate hike later this week. The dollar gained support after stronger-than-expected underlying U.S. inflation reinforced the case for tighter monetary policy.

U.S. consumer prices rose 0.4% month-on-month in August, bringing the annual inflation rate to 3.4%, both in line with expectations. However, core CPI, which excludes food and energy, accelerated to 0.3% from 0.2% previously and exceeded forecasts, adding to concerns that inflationary pressures remain persistent.

Markets are now pricing in around a 91% probability of a 25-basis-point Fed rate increase at Wednesday’s meeting, up sharply from roughly 72% before the latest U.S. producer price data. The shift in expectations has provided additional support to the dollar and weighed on the euro.

Meanwhile, the European Central Bank raised its deposit rate to 2.50% at last week’s meeting, marking its second rate hike of the year.

Overall, the euro remains under pressure in the near term as the prospect of higher U.S. interest rates supports the dollar, although expectations of additional ECB tightening could help limit the downside for EUR/USD.

Gold prices edged lower to around $4,340 in early Asian trading on Monday as markets increasingly anticipated a Federal Reserve rate hike at this week’s policy meeting.

The precious metal remained under pressure after the latest U.S. inflation data reinforced expectations for tighter monetary policy.

Higher interest rates tend to weigh on gold, as the non-yielding asset becomes less attractive compared with interest-bearing investments.

All eyes are now on Wednesday’s Fed decision, with investors also focusing on Fed Chair Kevin Warsh’s press conference for clues about the outlook for monetary policy. A less hawkish tone could help cushion gold’s decline, while signals of further tightening may add to selling pressure.

Still, uncertainty ahead of the meeting remains elevated, with some policymakers likely to argue that easing underlying inflation pressures warrant a more cautious approach. This could keep gold volatile as markets position for the Fed’s decision.

Oil prices jumped sharply early Monday as renewed Houthi attacks on Saudi Arabia and fresh strikes around the Strait of Hormuz heightened concerns over further disruptions to Middle Eastern crude supplies.

The latest gains kept oil prices close to their highest levels of the year as geopolitical risks continued to strengthen crude’s risk premium.

The rally was driven largely by renewed Houthi attacks over the weekend, including strikes on Saudi targets and shipping routes around the Bab el-Mandeb Strait. Saudi Arabia also shut a key East-West pipeline following the attacks, raising concerns about the country’s ability to redirect crude exports if disruptions around Hormuz intensify.

Meanwhile, hopes for a diplomatic de-escalation weakened after Oman said a regional meeting between Iran and Gulf states, originally scheduled for Monday, had been postponed. The delay reduced expectations that negotiations could ease tensions around Hormuz and further supported oil prices.

With crude flows through the Strait already significantly reduced following renewed U.S.-Iran hostilities, investors are likely to remain highly sensitive to developments in the region, keeping oil markets volatile in the near term.

U.S. stocks finished higher on Friday as oil prices pulled back, offering some relief to investors despite renewed pressure on Treasury yields following the latest inflation data.

Despite Friday’s gains, the major indexes posted weekly declines as a sharp bond-market sell-off, rising rate expectations and elevated oil prices weighed on sentiment.

The latest U.S. CPI report strengthened expectations for tighter monetary policy. Headline inflation rose 0.4% month-on-month in August, while core CPI increased 0.3%, slightly above the 0.2% consensus. On an annual basis, headline CPI remained at 3.4%, while core inflation eased to 2.4%.

In corporate news, Oracle shares fell 1.74% after surrendering earlier gains despite stronger-than-expected earnings and an upgrade to its annual outlook. The company reported more than $30 billion in new AI cloud contracts, lifting its remaining performance obligations to $664 billion. Adobe gained 1.4% after reporting solid quarterly results, although its guidance was slightly weaker than expected.

Overall, markets remain caught between resilient corporate earnings and growing concerns that higher inflation, oil prices and Treasury yields could keep the Fed on a tighter policy path for longer.