US Inflation Data and ECB Meeting Set to Shape Market Expectations

The upcoming week will be dominated by US inflation data for August on Friday. The release could tip the balance towards either a pause or an interest rate hike at next week's Federal Open Market Committee (FOMC) meeting, according to many policymakers.

CPI Inflation is expected on Friday, and Christopher Waller, a policymaker, noted that if the reading does not present a negative surprise, he will likely support keeping interest rates unchanged. Waller stated that the disinflation process is progressing, with core inflation looking even better than headline indicators suggest.

The European Central Bank (ECB) meeting on Thursday will also be closely watched, as markets currently expect a rate hike to be fully priced in by mid-2027. The market-implied probability of a September rate hike rose to 60% after the release of non-farm payrolls data last week.