<ul><li>Swift normalisation of interest rates is an essential first phase</li><li>Must forcefully tackle persistently high inflation</li><li>Inflation will remain high for some time; markets expect peak in Q1 next year</li><li>Sees several upside risks to inflation</li></ul><p style=““ class=“text-align-justify“>This ties with the more aggressive comments from ECB policymakers since Jackson Hole over the weekend. As things stand, a 75 bps rate hike next week appears to be the most likely scenario as they are also doing their best to tee that up.</p>

This article was written by Justin Low at www.forexlive.com.

<p>Headlines:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/equities-recover-some-allure-after-post-jackson-hole-drop-20220830/“>Equities recover some allure after post-Jackson Hole drop</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/a-couple-of-reasons-for-the-softer-dollar-today-20220830/“>A couple of reasons for the softer dollar today</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/saxony-august-cpi-73-vs-72-yy-prior-20220830/“>Saxony August CPI 7.3% vs 7.2% y/y prior</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/bavaria-august-cpi-84-vs-80-yy-prior-20220830/“>Bavaria August CPI 8.4% vs 8.0% y/y prior</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/north-rhine-westphalia-august-cpi-81-vs-78-yy-prior-20220830/“>North Rhine Westphalia August CPI 8.1% vs 7.8% y/y prior</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/spain-august-preliminary-cpi-104-vs-109-yy-expected-20220830/“>Spain August preliminary CPI 10.4% vs 10.9% y/y expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/china-to-hold-20th-communist-party-congress-starting-on-16-october-20220830/“>China to hold 20th Communist Party congress starting on 16 October</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/uk-july-mortgage-approvals-6377k-vs-6173k-expected-20220830/“>UK July mortgage approvals 63.77k vs 61.73k expected</a></li></ul><p style=““ class=“text-align-justify“>Markets:</p><ul><li>AUD leads, CHF lags on the day</li><li>European equities higher; S&P 500 futures up 0.8%</li><li>US 10-year yields down 4.7 bps to 3.063%</li><li>Gold down 0.3% to $1,732.53</li><li>WTI crude down 3.0% to $94.08</li><li>Bitcoin up 1.1% to $20,408</li></ul><p style=““ class=“text-align-justify“>With month-end trading in focus, markets are reversing some of the post-Jackson Hole moves as the dollar falls, equities climb and bond yields retreat in European trading today.</p><p style=““ class=“text-align-justify“>It could also be because the White House alluded to labour market conditions going to „cool off“ ahead of the US jobs report on Friday and we have seen how those comments affect markets previously when it comes to inflation data.</p><p style=““ class=“text-align-justify“>Either way, the theme is consistent with a retreat of the moves from Friday and yesterday. The dollar fell with EUR/USD climbing up from parity to 1.0055 before easing a little to 1.0020. Meanwhile, GBP/USD pushed to a high of 1.1760 before falling flat on the day to 1.1710 at the moment.</p><p style=““ class=“text-align-justify“>USD/JPY is looking heavy as bond yields fell, with the pair easing from 138.50 to 138.05 before keeping around 138.20 currently.</p><p style=““ class=“text-align-justify“>As equities pushed higher, commodity currencies are benefiting with AUD/USD up 0.4% to 0.6930 with the high earlier coming in at 0.6955. USD/CAD was down to a low of 1.2973 before a drop in oil prices pressured the loonie and the pair is back up to flat levels at 1.3010 on the day.</p><p style=““ class=“text-align-justify“>It looks like markets are going to get stuck in once again over the next few days as the dollar momentum has been quelled. That means we are likely to see some pushback on the gains from Friday but I would expect the greenback to still hold its ground before we get to the NFP release at the end of the week.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>The congress typically lasts for about a week, in which members of the party will gather to choose the leadership for the next five years. For some context, China passed a constitutional amendment that allowed the president to serve an unlimited number of five-year terms back in 2018. That was pretty much Xi cementing his power on the throne as he could very well serve as president for life in China.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>Citi last week said that UK inflation was set to peak at 18.6% in January and now we are seeing Goldman Sachs top that estimate, as the firm argues that we may see inflation spiral to over 20% early next year in the UK.</p><p style=““ class=“text-align-justify“>“In a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January (vs 19% assumed in our baseline). This would imply headline inflation peaking at 22.4%, well above our baseline forecast of 14.8%.“</p><p style=““ class=“text-align-justify“>The firm also says that they expect a recession to begin in Q4 this year, with the economy set to contract by 0.6% next year. As for the BOE outlook, they see policymakers raising the bank rate by 50 bps to 2.25% next month but notes that there are upside risks to its forecasts for additional 25 bps rate hikes in subsequent meetings.</p>

This article was written by Justin Low at www.forexlive.com.