Brent jumps to $107 as Fed hike odds reach 87%

Brent jumped to $107 a barrel and market pricing put the odds of a Fed hike at 87%, pushing EUR/USD to a one-month low.

Our weekly wrap left a test for this week: could the dollar top the basket on any session? It firmed here, to near a two-week peak. But the session's first move was in the barrel, and the rate bet followed it.

Dollar strength and yields

• US Treasury yields remained near multi-year highs as expectations for a Federal Reserve rate hike increased following earlier PPI and CPI reports. Market pricing put the odds of a hike at 87% for the meeting that decides on Wednesday at 18:00 UTC.
• A stronger dollar, driven by these hawkish Fed bets, pushed the EUR/USD pair lower by approximately 0.5% in early trading, reaching a one-month low and signaling potential further weakness.
• ActionForex reported gold had broken below $4,300, with oil-driven inflation risk feeding a hawkish Fed outlook that overpowered haven demand. A later wrap still had the metal testing that support rather than through it.

Commodities in focus

• Brent jumped to $107 a barrel, with WTI also above $100. Reports that a Saudi East-West pipeline would be out of service for 3-5 weeks raised supply concerns.
• Later in the session, reports citing Pakistani sources said the US was seeking a "step-by-step" deal with Iran. That headline helped push oil back off its highs.

Canadian inflation holds steady

• Canada's headline CPI inflation remained unchanged at 3.0% year-over-year in August, aligning with market expectations and the July reading. The monthly reading eased 0.1%, which ActionForex called an undershoot against expectations for no change.
• Underlying inflation measures showed some slight divergence, with the Median CPI y/y holding at 2.0% and Trimmed CPI y/y at 1.9%, both matching forecasts. Common CPI y/y came in at 2.6% against a 2.7% forecast.

Market sentiment and AI

• AI and chip stocks led an early sell-off on doubts about the sector's growth assumptions. Risk appetite then recovered on Trump's comments about AI and energy, with stocks reaching session highs while staying solidly negative.
• US President Donald Trump said AI and data centres would be "the Greatest Economic Development Engine in History", and that the only guardrail AI needs is a "high IQ" president.

Market metrics and outlook

Our MRS closed at 69, an acceptable reading rather than a prime one, the CTS was high at 76, and the FSI registered 62 (Greed). The Federal Reserve decides on Wednesday at 18:00 UTC, with a rise to 4.00% from 3.75% forecast, and the Bank of Japan follows on Friday. UK Claimant Count Change and Average Earnings Index are due later today. As Asia trades, our strength gauge currently ranks the NZD as the strongest major currency, with the AUD as the weakest.