As the military conflict between the United States and Iran continues, volatility in global financial markets is increasing ahead of the U.S. consumer price index (CPI) release for August and key monetary policy meetings in major economies. With escalating tensions in the Middle East causing a surge in international oil prices, there is growing concern that higher-than-expected inflation in the U.S. could lead to an increased likelihood of interest rate hikes by the Federal Reserve.
According to the International Financial Center, Brent crude oil prices rose by 7.80% to $96.28 per barrel on September 4, compared to the previous weekend. The ongoing military conflict has significantly reduced the number of vessels passing through the Strait of Hormuz, a crucial oil transport route. Market analysts are increasingly worried about potential disruptions to oil supply, as the likelihood of a swift resolution to the conflict diminishes.
OPEC+, the coalition of major oil-producing countries, has decided to maintain its current production policy in October. However, due to the impact of the Middle Eastern conflict, actual supply levels are falling well short of targets, suggesting continued uncertainty in oil prices.
The upcoming U.S. CPI report, scheduled for release on September 11, is expected to be a key factor influencing the Fed's monetary policy direction. Analysts predict that the headline CPI will show a year-over-year increase of 3.4%, remaining unchanged from the previous month, while the month-over-month increase is expected to rise from 0.1% to 0.4%. Core CPI is projected to increase by 2.4% year-over-year and 0.2% month-over-month. Given the persistent inflation concerns, the Fed's interest rate trajectory may shift based on the detailed indicators.
Additionally, the European Central Bank (ECB) monetary policy meeting scheduled for September 10 is another variable to watch. The market anticipates a 0.25 percentage point increase in key policy rates, with attention focused on whether further rate hike signals will be issued.
The strengthening of the Japanese yen has also emerged as a factor that could influence global capital flows. The yen appreciated by 2.45% against the dollar last week, reaching 156.26 yen. Factors contributing to the yen's strength include expectations of further interest rate hikes by the Bank of Japan, potential selling of foreign bonds by Japanese investors, and a narrowing interest rate gap between the U.S. and Japan.
If the interest rate gap between the U.S. and Japan continues to narrow, there may be a reduction in yen carry trades. Market estimates suggest that positions betting on a weaker yen could amount to as much as 17 trillion yen, and if these positions are fully liquidated, the dollar-yen exchange rate could drop to between 142 and 146 yen. Nomura has analyzed that, in an extreme scenario, the Bank of Japan could implement three consecutive interest rate hikes.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.