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Global central banks are entering a pivotal phase, with policy rates expected to remain unchanged across the Federal Reserve, the Bank of England, and the Bank of Japan this week, following the European Central Bank’s decision to leave rates on hold last week. While markets broadly expect all four central banks to resume tightening in September if economic conditions warrant, the key distinction lies in their communication. The ECB, BOE, and BOJ are likely to retain the option of further tightening through their guidance.
However, the Fed could chart a different course under Chairman Kevin Warsh. Rather than reinforcing expectations for a September move, Warsh may signal a broader overhaul of the Fed’s communications framework, including hints at this week’s FOMC meeting about the possibility of scrapping the dot plot and Summary of Economic Projections from the September meeting. Such a shift would place greater emphasis on meeting-by-meeting decisions and incoming data. While Warsh has indicated a lack of tolerance for elevated inflation, this week’s PCE headline and core inflation could mirror the declines in CPI and PPI, providing him the cover not to hike before the November 3 midterms. While the policy path may remain similar to that of its global peers, the Fed’s communications style could become the source of market differentiation.
The bullish USD narrative will become harder to sustain if Brent crude prices settle into a broad $70-100 per barrel range. According to the New York Times, US President Donald Trump may set aside plans to sharply escalate the US military attacks against Iran. With less than 100 days to midterms, the return of oil prices to $100 has coalesced the Democrats’ campaign offensive to steer the election into a referendum on the Trump administration’s foreign policy and economic management.
The market’s muted reaction to Trump’s latest tariff announcement on forced labour reflects fatigue. After many escalate-to-de-escalate episodes aimed at forcing trade deals, markets now assign a lower probability to the most disruptive outcome. This week’s corporate earnings will show investors expecting earnings to be affected but not derailed. Moreover, oil matters more than tariffs this year amid a US economy that looks closer to Goldilocks than exceptional, and a new Fed leader who keeps rate decisions close to his chest.
Singapore’s decision this morning to very slightly increase (less than April’s rise) the SGD NEER policy band’s slope came amid the rebound in global crude prices and the return of tariff uncertainty. Per our model, the new slope should be more consistent with 2026’s official inflation forecast range of 1.5-2.5%. MAS’s willingness to curb SGD NEER volatility limits USD/SGD to 1.2850 for now.
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