TMGM Daily Market Breakfast: 3 September 2026

Morning Snapshot

• The Bank of Canada left its overnight rate unchanged at 2.25% and signalled that multiple rate increases could be required if inflation broadens beyond energy-driven pressures.
• The Federal Reserve’s Beige Book showed modest U.S. growth and slight employment gains since early July, while prices rose in eight districts and officials kept the focus on inflation risks.
• Japanese yen volatility intensified as hawkish Bank of Japan signals, intervention warnings and reports of a possible September rate increase drove USD/JPY down from above 160 to below 158 at one stage.
• Oil prices remained elevated as renewed U.S.-Iran hostilities and disruption to shipments through the Strait of Hormuz kept supply risks in focus, with WTI trading near $90 and Brent closing above $95.
• President Donald Trump said the renewed U.S. campaign against Iran would not continue for too long but warned that Washington was prepared to strike again.
• The Wall Street Journal reported that U.S. Defense Secretary Pete Hegseth extended troop deployment timelines across the Middle East, signalling the conflict could stretch into 2027.
• A Reuters poll of 65 economists showed consensus for a 25 basis point European Central Bank rate increase next week, which would take the deposit rate to 2.50%.
• Swiss data beat expectations as inflation and GDP both came in stronger than forecast, helping the franc recover from monthly lows.
• Australian rate-hike expectations firmed after stronger-than-expected second-quarter GDP, with TD Securities shifting to a call for a 25 basis point Reserve Bank of Australia increase later this month.

Market Developments

Foreign Exchange

The Japanese yen rallied sharply, with USD/JPY falling more than 1% at one stage to around 158.20 before ending near 158.70, while EUR/JPY dropped 1.37% to around 181.40 and GBP/JPY fell nearly 1% to about 214.43 as markets reacted to hawkish Bank of Japan signals and renewed intervention speculation.

Energy & Precious Metals

WTI crude traded around $89.60 to just under $91, putting the U.S. benchmark close to a 10% weekly gain, while Brent rose 1.0% to settle at $95.63 after briefly reaching about $97 and gold rebounded around 1.2% to $4,382.

Rates

U.S. rate expectations firmed, with 17 basis points of tightening priced for the 16 September FOMC meeting and the 2-year Treasury yield climbing to a year-to-date high of 4.41%.

Central Banks & Macroeconomics

Bank of Canada Holds at 2.25% and Flags Risk of Multiple Further Increases

The Bank of Canada left its overnight rate unchanged at 2.25% and delivered a more cautious message as inflation risks increased and the recovery became harder to assess. Governor Tiff Macklem said multiple rate increases could be required if inflation remained a problem, while stressing that future decisions would be guided by the inflation outlook and the risks around it.

The bank said labour demand remained subdued, excess supply persisted and uncertainty over the durability of the rebound remained high. New U.S. tariffs and the threat of further trade action were cited as clouds over growth prospects, while the Middle East conflict was keeping energy prices higher for longer.

Macklem said inflation was too high, though he noted that the recent increase was heavily concentrated in gasoline and oil prices. He said the key issue for policymakers was how long energy prices stayed elevated and how far they rose. Senior Deputy Governor Carolyn Rogers added that monetary policy could not respond to a single risk or isolated data point.

Officials also addressed the recent bond-market sell-off. Macklem said higher global yields were spilling over into Canada, while Rogers described the move as a repricing of risk rather than a sign of drying liquidity, dysfunction or financial instability.

Fed Beige Book Shows Modest Growth as Inflation Pressures Persist

The Federal Reserve’s Beige Book said U.S. economic activity increased modestly since early July and overall employment rose slightly, while prices increased in eight districts. The report added to evidence that inflation pressures have not fully faded even as growth remains positive.

Fed officials also kept attention on inflation risks. New York Fed President John Williams said recent data had been encouraging on inflation, but added that tariffs and the Middle East war were major drivers of inflation remaining above target. Fed Governor Michael Barr said policymakers could take more time if data trends gave confidence that inflation was moderating toward 2%, but should act decisively if inflation was not easing sufficiently.

Market pricing also shifted firmer, with 17 basis points of tightening priced for the 16 September FOMC meeting and the 2-year Treasury yield reaching 4.41%, a year-to-date high.

BoJ Rate-Hike Signals Drive Sharp Yen Rebound

The Japanese yen strengthened sharply after a run of hawkish Bank of Japan signals and renewed intervention warnings, with USD/JPY dropping more than 1% at one stage to around 158.20 before ending near 158.70. During Thursday trading, the pair was seen around 156.80 to 158.15 after having repeatedly traded above 160 earlier.

BoJ board member Hajime Takata said a standard 25 basis point increase was not necessarily set in stone and that back-to-back hikes could also be considered. Governor Kazuo Ueda reiterated the need to pay greater attention than before to upside risks to inflation. Reports also said the BoJ was leaning toward a quarter-point increase at the meeting ending on 18 September, which would take the benchmark rate to 1.25%.

Market pricing moved decisively. Overnight index swaps were described as fully pricing a 25 basis point September increase and roughly 44 basis points of tightening by year-end, while another report said the swaps curve still assigned only 5% odds to a 50 basis point move. Japanese authorities also reiterated that they remained ready to intervene in the foreign-exchange market, and the yen’s abrupt move briefly fuelled speculation about a rate check, though there was no clear evidence of fresh intervention.

The yen’s gains were broad-based. EUR/JPY fell 1.37% to around 181.40 and GBP/JPY dropped nearly 1% to about 214.43 as markets reassessed the policy outlook ahead of the BoJ meeting.

ECB Seen Delivering 25 Basis Point Increase Next Week

A Reuters poll of 65 economists showed consensus for the European Central Bank to raise its deposit rate by 25 basis points to 2.50% on 10 September. Separate commentary from ING also described next week’s move as the most likely outcome, characterising it as an insurance-style increase aimed at reinforcing credibility as energy prices keep headline inflation elevated.

The case for further tightening beyond next week appeared less clear in the reporting period. Commentary pointed to inflation staying above 3% year-on-year for the rest of the year, largely because of energy, while core and services inflation were described as less alarming. That combination has kept the focus on whether the ECB treats the next move as a limited response to an energy shock rather than the start of a broader tightening phase.

Swiss Inflation and GDP Beat Forecasts

Swiss inflation and economic growth both came in stronger than expected, helping the franc recover from monthly lows against the U.S. dollar. The stronger data reinforced the view that domestic price and activity conditions remain firmer than anticipated during the latest reporting period.

Stronger Australian GDP Lifts September RBA Hike Expectations

Expectations for a Reserve Bank of Australia rate increase later this month strengthened after stronger-than-expected second-quarter GDP and firm discretionary consumption. TD Securities shifted to a call for a 25 basis point increase at the late-September meeting, which would take the cash rate to 4.60%.

The firm said annual growth was running slightly above trend and that the details of the GDP report added to the case for tighter policy. It also noted that household consumption was roughly in line with the RBA’s 0.4% quarter-on-quarter projection, while discretionary spending had accelerated over recent quarters and July household spending data showed that discretionary demand remained firm.

Geopolitics, Energy & Commodities

Oil Holds Near Multi-Week Highs as U.S.-Iran Conflict Disrupts Regional Flows

Oil prices stayed elevated as renewed U.S.-Iran hostilities and disruption to shipments through the Strait of Hormuz kept supply risks in focus. WTI traded around $89.60 to just under $91 during the reporting period, while Brent rose 1.0% to close at $95.63 after touching about $97 intraday.

The U.S. carried out a second round of attacks in three days, targeting radar systems and mine-laying capabilities along Iran’s southern coast, while Iran retaliated against U.S. bases across the Middle East. Reports also said oil shipments through Hormuz remained restricted, adding to concerns over near-term supply flows.

Price action was volatile. WTI was described as near a six-week high and almost 10% higher on the week at one stage, while Brent’s rally moderated after President Donald Trump said the renewed bombing campaign against Iran would likely be short-lived, even as he stressed that the U.S. was prepared to strike again. Gold also rebounded around 1.2% to $4,382.

Trump Says Iran Campaign Will Be Short but Warns of More Strikes

President Donald Trump said the renewed U.S. campaign against Iran would not continue for too long, but added that Washington was prepared to strike Iran again at any time. The remarks came as markets weighed whether the latest escalation would broaden into a longer conflict.

His comments helped frame a mixed message for markets: an attempt to signal that the current phase of fighting may be limited, alongside a clear warning that further military action remains on the table.

Report Says U.S. Extends Middle East Troop Deployments Into 2027

The Wall Street Journal reported that U.S. Defense Secretary Pete Hegseth extended troop deployment timelines across the Middle East, signalling that the conflict could drag into 2027. The reported move underscored the risk that the current security crisis becomes a longer-running strategic commitment rather than a short-lived flare-up.

Upcoming Key Events

• European Central Bank Policy Decision — 2026-09-10: The ECB is due to hold its next policy meeting, with economists in a Reuters poll expecting a 25 basis point increase that would take the deposit rate to 2.50%.
• Bank of Japan Policy Meeting — 2026-09-18: The Bank of Japan’s two-day meeting ending on 18 September is in focus after reports that officials are leaning toward a quarter-point increase and markets fully priced a 25 basis point move.
• Federal Reserve September FOMC Meeting — 2026-09-16: The next FOMC decision is scheduled for 16 September, with markets pricing 17 basis points of tightening and attention on incoming August jobs and CPI data ahead of the meeting.