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Democrats won both chambers of Congress, making further fiscal stimulus harder to pass and giving the Senate more leverage over Fed appointments. Trump retains considerable discretion on tariffs and foreign policy, leaving the conflict with Iran a key risk for oil prices and inflation. Since the vote, the dollar has weakened, gold has risen and oil has fallen sharply. European stocks gained, while Wall Street reversed its initial losses and moved above pre-election levels.

The Fed and ECB are likely to pause in October before potentially raising rates in December. Persistent inflation and resilient growth favour further tightening, but French debt tensions could constrain the ECB. Lower energy prices and elevated bond yields may reduce the need for additional hikes next year.

Persistent inflation is strengthening the case for December rate hikes by both the Fed and the ECB. US core price pressures remain stubborn, while European policymakers increasingly favour further tightening. For EUR/USD, the key will be which central bank signals a greater overall need to raise rates.

French bond spreads have narrowed, but high debt and resistance to reform continue to undermine confidence. Pressure on Italian bonds signals contagion risks. Stronger banks and ECB intervention tools reduce the likelihood of a repeat sovereign debt crisis, although lasting stability requires a credible French fiscal plan.

US payrolls rose by just 29,000 in September, while revisions cut July and August employment by a combined 60,000. Unemployment increased to 4.2% and annual wage growth slowed to 3.0%. The report strengthens the case for an October Fed pause, potentially weighing on the dollar and Treasury yields while supporting gold.

Middle East tensions and energy prices remain central to the market outlook. The US economy is supported by AI investment, while China faces weak domestic demand. Inflation may keep the Fed and ECB cautious. Bond yields could ease temporarily if energy prices fall, while longer-term fiscal pressures remain. Political risks may gradually weigh on the dollar.

UK inflation accelerated to 2.9% in August, while core and services inflation remained stable. The data support keeping interest rates unchanged tomorrow but do not eliminate the risk of future tightening. With wage growth slowing and the labour market weakening, the four rate hikes currently priced in by markets still appear too aggressive.

The yen’s medium-term outlook remains constructive, but much of the expected Bank of Japan tightening may already be priced in. With weak consumption limiting the scope for aggressive rate hikes, USD/JPY may consolidate near 155 unless the BoJ or Japan’s GPIF provides a fresh catalyst.

Gold is undergoing a shallow correction ahead of Kevin Warsh’s Jackson Hole speech. A neutral stance on easing financial conditions could support another test of USD 4,775 and USD 4,890 per ounce. A hawkish message, however, could revive expectations of a September rate hike, strengthen the dollar and trigger a deeper pullback.

A sharp rise in US Treasury yields dominated the week before the Treasury Department expanded its long-term bond buyback programme. The move improved market liquidity and briefly reduced borrowing costs, but also weakened the dollar. With oil prices elevated and US debt exceeding USD40 trillion, investors are questioning whether Washington is becoming more willing to tolerate currency depreciation in order to stabilise the bond market.