USD: Room for Further Dovish Repricing

At the start of August, ING's call for no Federal Reserve rate hikes this year was set to face five major tests before the 16 September FOMC meeting: two jobs reports, two CPI reports, and Jackson Hole. These events carry particular weight because employment and inflation are the two pillars of the Fed's dual mandate, making them the primary inputs for any rate decision. The concern was that if these events failed to trigger a dovish shift in market expectations, pricing a September hike above 50% could itself have materially increased the risk of a hike, if only to avoid another bond sell-off on meeting day.

The first test arrived on Friday and came through clearly dovish and dollar-negative. As James Knightley notes, the -20k payroll print was not the only concern. More than 100k of downward revisions leave average payroll growth at just 20k over the past three months, with health and social care still doing most of the heavy lifting. Meanwhile, the fall in the unemployment rate was largely driven by people leaving the labour force rather than finding work.

The second test — Wednesday's July CPI release — is expected to send a similar, albeit less dramatic, message. ING's forecast is for headline CPI at 0.1% month-on-month versus 0.2% consensus, and core CPI at 0.2%, in line with consensus.

The dovish Fed call is strengthening, and so is the bearish bias on the dollar. Despite Friday's repricing, 11 basis points are still priced in for September, 28bp for December, and 40bp for April. There remains ample room for dovish repricing to weigh on the dollar if the Fed hold thesis proves correct. Today, the US calendar is empty, but markets will hear from Fed arch-hawk Beth Hammack.

JPY: Intervention Risk Not Enough to Counter Short-Building Bias

The yen should, in theory, remain one of the main beneficiaries of dovish US surprises given its high sensitivity to rates. The problem is the seemingly inevitable bias to rebuild JPY shorts after an intervention episode. This dynamic reflects the broader carry trade structure, where investors borrow in low-yielding yen to deploy in higher-yielding currencies — a trade that tends to resume as long as the rate differential between Japan and the US remains wide. Neither intervention risk nor growing confidence in a September Bank of Japan hike — with this morning's minutes modestly more hawkish — appears sufficient to counter that trend.

USD/JPY has already returned to the pre-payroll 158.30–158.50 area. The path ahead may remain choppy. A move back to 160.0 at some point this month remains a tangible risk, even if September delivers both a BoJ hike and a Fed hold.

— Francesco Pesole

EUR: Potential Break Above 1.160 This Week

The euro is entering a particularly quiet stretch for domestic drivers. The key July data releases are behind us, while August is typically a quiet month for European Central Bank communication. In any case, the ECB has already given markets a quasi-commitment to a September hike, part of its continued effort to bring inflation back to its 2% target after a prolonged tightening cycle that began in July 2022.

That leaves EUR/USD firmly dominated by the dollar side of the equation. A softer US CPI print would increase the chances of a break above 1.160 already this week. The next important resistance beyond that is the 200-day moving average at 1.1630.

Short-term fair value models are offering little direction at present, with EUR/USD broadly tracking moves in rates, equities, and commodities. Short-term rate differentials have continued to grow as the main driver for the pair, meaning sensitivity to the Fed story should remain very elevated.

— Francesco Pesole

RON: Rating Relief but Inflation Keeps NBR Cautious

Moody's kept Romania's rating at Baa3 with a negative outlook, following Fitch's unchanged decision a week earlier. Baa3 sits at the lowest rung of investment grade, meaning any downgrade would push Romania into sub-investment territory — a shift that typically raises borrowing costs and can trigger capital outflows from funds mandated to hold investment-grade assets. This should offer some relief after ROMGBs sold off by around 15bp at the long end last week, even as the rest of the region rallied.

Today, the National Bank of Romania is expected to keep rates unchanged at 6.50%, and there is little reason for a shift in tone versus previous meetings, with ING's forecast still pointing to the first rate cut only in January 2027.

The more important release will be Wednesday's Romanian headline inflation, where the first visible easing is expected, with inflation falling from 10.4% to 7.6% year-on-year. Still, the decline is largely base-effect driven, while month-on-month dynamics accelerated from June. Friday's 2Q GDP data should point to only marginal growth of 0.1% quarter-on-quarter after stagnation in 1Q, alongside a year-on-year contraction across the first half of the year.

EUR/RON remains anchored just below 5.25, and limited movement is expected given the NBR's lack of room to tolerate additional inflation pressure. However, relief over the unchanged rating could support a RON rally today as buyers and carry trades return to the market.

— Frantisek Taborsky

CEE: Busy Data Week Meets Global Market Pressure

Outside Romania's busy calendar, the rest of the CEE week brings final Czech inflation on Tuesday, with headline CPI expected to be confirmed at 1.7% and the focus on core inflation, seen unchanged around 2.8–2.9%.

On Thursday, Turkey's central bank will publish its inflation report, while Poland will release final CPI, likely confirming 3.0%, alongside 2Q GDP. ING estimates Polish GDP growth accelerated to 3.8% YoY from 3.5% YoY in 1Q26, despite a further slowdown in private consumption, as investment growth gained momentum. Friday's Polish core inflation should edge up from 3.0% to 3.1% YoY.

CEE markets remain mainly driven by global headlines, a pattern consistent with the region's status as a small, open economic bloc where currencies and rates are heavily influenced by external risk appetite, energy prices, and eurozone monetary policy. With no progress in US-Iran talks over the weekend, a mixed open is expected, especially after Friday's regional rates rally following US jobs data. Higher oil prices could trigger some correction, while last week's narrowing in rate differentials may put pressure on CEE currencies.

EUR/CZK remains in focus after closing above 24.250 on Friday, in line with ING's post-Czech National Bank meeting call, though upside risk closer to 24.300 is still seen.

— Frantisek Taborsky

Source: ING