Insights

The U.S. dollar weakened against most major currencies in August, with the decline partly reversing toward month-end. Soft U.S. labour-market and CPI data for July reduced expectations for Fed tightening, pushing the probability of a September hike as low as 30%. The Treasury’s decision to at least double buybacks of long-dated government bonds also weighed on the greenback. However, Fed Chair Kevin Warsh’s hawkish Jackson Hole speech, highlighting upside inflation risks, revived rate-hike expectations, with the September probability rising above 60%.

The yen was the weakest performer despite expectations for significant BoJ tightening through 2027. Markets remained skeptical about whether Japanese policymakers could adopt a more hawkish stance, particularly as Prime Minister Takaichi has indicated a preference for low rates to support growth. The euro was the strongest major currency, supported by expectations of ECB rate hikes in September and potentially December. Sterling also gained, although expectations for a September BoE hike fell following softer UK CPI data. Gold was among August’s strongest performers, rising as much as 16% before correcting sharply toward month-end. The initial rally reflected dollar weakness and expectations of slower Fed tightening, while Warsh’s hawkish comments triggered a pullback as Treasury yields and rate-hike expectations increased.

The month commenced against a backdrop of elevated volatility for the IXI strategy, with markets continuing to absorb the effects and broader implications of the Bank of Japan’s intervention in the final days of the previous month. Following the initial turbulence, market conditions stabilised to a significant extent, providing a more orderly environment for the strategy to operate without further external disruptions. Although the month was relatively uneventful, characterised by subdued directional volatility, the strategy remained effective and successfully captured opportunities as they emerged.