Fed Hawkishness Fuels Rate Hike Odds Amid Global Economic Headwinds

The Federal Reserve's hawkish message, delivered by Fed Chair Warsh at Jackson Hole, has increased the odds of not just a September rate hike but another one before year-end. This development comes as the Bank of Japan prepares to meet against a backdrop of disappointing Q2 growth. Consumption contracted by 0.1% despite real wage gains, and capital expenditures shrank for the third quarter in the past four.

The Bank of England's index (BWCI) is up about 1.0% this year after a 3.7% advance last year, which was its first increase since 2020. Meanwhile, sterling rose for the first time in back-to-back months this year in August, reaching $1.3675, its highest in six months.

Australia's dollar has appreciated by almost 7.3% against the US dollar through late August, driven by three rate hikes in the first half and the prospect of another before year-end.