Asia FX Talk Hitting the brakes

Asia FX Talk Asia FX Talk MICHAEL WAN Senior Currency Analyst Hitting the brakes Global Markets Research Global Markets Division for Asia T: E: 14 September 2026

Market Highlights US August CPI inflation came in higher than expected, leading to a repricing higher of Fed fund rate hike expectations by the market, and setting up the scene for the FOMC and also Bank of Japan policy meetings this week. In particular, US core CPI rose 0.3% mom and above consensus expectations of 0.2%mom. Although some of the inflation pick-up was driven by wireless services which some have argued might have been a one-off, hawkish comments by Fed Chair Kevin Warsh during Jackson Hole coupled with Governor Waller’s recent stated reaction function has all but led markets to now price in close to a near-certainty of a Fed hike in this week’s FOMC meeting. The Fed Fund Futures market is now pricing a 88% probability of a hike in September, together with a terminal rate in 2027 of 4.53% (~3.6 hikes), up from MUFG Bank, Ltd. 4.29% earlier last week (~2.7 hikes). Our US rates strategy team is now calling for two A member of MUFG, a global financial group rate hikes by the Fed, one in September and one in December 2026 (see link here).

CHART 1: EXPECTATIONS FOR FED FUND RATE HIKES ROSE AFTER THE HOTTER THAN EXPECTED US CPI PRINT

Fed Funds rate expectations based on Futures Market Today (14 Sep 2026) Before US CPI (9 Sep 2026) 4.70 Before Kevin Warsh's Jackson speech (27 Aug 2026)

G3: ECB’s Lagarde speaks 3.90 Asia: India CPI and WPI 3.70

Source: Bloomberg, MUFG GMR estimates.

1 Asia FX Talk │ 14 September 2026

What was quite interesting, and maybe at first glance incongruent was the initial price action, with equities and gold actually rising despite higher US yields, and inflation breakevens lower (as a proxy for inflation expectations) with higher US real yields. In addition, the Dollar was initially weaker, but started to recover slightly through the US session.

Our global team highlighted one possible reason for the USD weakness post US CPI could be lingering concerns around the Fed being too slow to tighten policy and lagging other key central banks (see here). Political influence on the Fed whether real or perceived including President Trump’s exhortation for lower rates could also be an important factor.

Of course over here, there are also multiple important things at play, including the re- escalation in the Middle East conflict which has pushed up Brent oil prices again closer to US$107/bbl. In addition, Anthropic CEO Dario Amodei said on Saturday that it would introduce additional safeguards including independent third-party evaluations, while also urging the broader AI industry to slow the pace of development of their most advanced models due to the increasing prevalence of cybersecurity risks. This could also weigh on risk sentiment and in particular chipmakers in the near-term.

For Asia FX and rates markets, we do see some risk of a near-term sell-off given the confluence of risks here, including higher oil prices and uncertainty around the AI story. While Asia macro assets have been resilient so far to higher US yields both real and nominal, there might be some risk that this may not continue given how markets are positioned today.

CHART 2: HIGHER CRUDE OIL AND PRODUCT PRICES COULD START TO WEIGH ON SENTIMENT IN ASIA FX MOVING FORWARD

US$/barrel Crude Oil versus Asia Refined Product Prices

240 Brent Oil - Active Contract

220 Singapore Jet Fuel 200 Singapore 95 Ron Gasoline 180 Singapore Gasoil 10 ppm

Aug-25 Sep-25 Aug-26 Sep-26 Feb-25 Feb-26 Jan-25 Mar-25 Apr-25 May-25 Jun-25 Jul-25 Oct-25 Nov-25 Dec-25 Jan-26 Mar-26 Apr-26 May-26 Jun-26 Jul-26 Oct-26

Source: Bloomberg, MUFG GMR estimates.

2 Asia FX Talk │ 14 September 2026