Wake Me Up When September Ends

US and European rate expectations are keeping the dollar firm while easing Eurozone underlying inflation limits the euro’s downside and Israel’s central bank is expected to cut rates.

• Fed funds futures price a 67% probability of a 25-basis-point hike on September 16 and 60 basis points of tightening over the following twelve months.
• The August US ISM manufacturing index is expected at 55.2, versus 55.6 in July, while Prices Paid is forecast to fall to 70.8 from 71.1, indicating resilient activity but less inflation pressure.
• Eurozone August headline inflation rose to 3.3% year over year from 2.9%, but core inflation eased to 2.4% from 2.5% and services inflation to 3.0% from 3.3%.
• Markets have almost fully priced a 25-basis-point ECB hike to 2.50% on September 10 and 75 basis points of tightening over twelve months.
• The Bank of Israel decision is evenly split between a cut and a pause, but BBH expects a third consecutive 25-basis-point cut to 3.25% because headline inflation has remained below 2% since January; Israel’s technology sector represents roughly 20% of GDP.

Takeaway: Investors should expect a September US hike and continued dollar support, while the ECB’s tightening bias should limit euro downside and Israel’s rate cut may be offset by technology-related capital inflows supporting the shekel; fiscal risks still leave the dollar vulnerable to periods of stress.