Central Banks Face Fresh Inflation Test Amidst Oil Price Surge

Global markets are heading into a crucial week as central banks prepare to make key decisions amidst rising oil prices and inflation risks. Brent crude jumped around 4 percent to $109 a barrel, while Fed rate-hike bets have strengthened.

The Federal Reserve is set to begin its September policy meeting this week, with investors pricing in an approximately 90% probability of a rate hike according to the CME Group's FedWatch tool.

Market participants will be closely watching how the Fed balances inflation against growth risks, as policymakers are divided on how aggressively they should respond. A tighter Fed could push yields higher, particularly at the short end, and support the dollar, creating near-term pressure on emerging markets and commodities.

The Bank of Japan's decision is also expected to be a major trigger for markets, with investors pricing in around a 75% probability of a 25-basis-point hike. The August national CPI data will be crucial in determining whether Governor Kazuo Ueda will sound more hawkish.