TMGM Daily Market Breakfast: 18 September 2026

Morning Snapshot

• The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, but the yen weakened sharply as markets focused on board dissent and cautious guidance on further tightening.
• The Federal Reserve’s 25 basis point rate increase to a 3.75%-4.00% target range continued to support the US dollar, with Chair Kevin Warsh saying inflation remains too high and underlying price trends have not meaningfully improved.
• The Bank of England left Bank Rate unchanged at 3.75% in a 6-3 vote, while warning that inflation risks have increased and outlining a slower multiyear quantitative-tightening path for gilt holdings.
• Reserve Bank of Australia Governor Michele Bullock said upside risks to inflation appear to be materialising, while Deputy Governor Andrew Hauser said the key question is whether tightening so far will be enough to return inflation to target in a reasonable time.
• ECB President Christine Lagarde said the central bank will decide on rates meeting by meeting, adding that growth looks a bit more promising and that there are still no signs of second-round inflation effects.
• Oil prices retreated from recent highs as Saudi Arabia moved to restore East-West pipeline flows, additional cargoes were routed outside the Strait of Hormuz and diplomatic efforts eased some immediate supply concerns.
• Iran’s Islamic Revolutionary Guard Corps said a Togo-flagged oil tanker was struck while attempting what it described as an illegal passage through the Strait of Hormuz, keeping regional shipping risks in focus.
• The SEC granted conditional five-year exemptive relief for tokenized securities venues to trade tokenized US national market system stocks, opening a regulated path for tokenized equity trading.
• The CFTC issued no-action relief for eligible passive software providers facilitating access to regulated futures markets without broker registration, as broader digital-asset market-structure legislation remained stalled.
• S&P Global agreed to acquire blockchain security firm OpenZeppelin, adding smart-contract security services and on-chain risk tools to its digital-assets business.

Market Developments

Foreign Exchange

The yen fell broadly after the Bank of Japan decision, with USD/JPY trading near 156.95 shortly after the announcement, around 157.11 later in the session and close to 158.00 in European trade, while EUR/JPY rose toward 181.00, GBP/JPY moved beyond 209.50 and AUD/JPY traded around 112.60, up 1.54% on the day. Sterling weakened after the Bank of England decision, with GBP/USD near 1.3350 after touching 1.3336 and EUR/GBP pushing toward 0.8600. The US Dollar Index tested 100.35, while AUD/USD traded around 0.7125 and NZD/USD around 0.5720.

Rates and Commodities

UK gilts rallied after the Bank of England’s quantitative-tightening overhaul, with 30-year yields falling about 12 basis points. US Treasury yields also eased as oil prices retreated, with the US 10-year yield declining to about 4.93% after briefly moving above 5.0% earlier in the week. In energy markets, WTI traded around $96.40 in Asian hours, near $95 later in the session, after swinging from roughly $97.50 to $94.50 and back, having reached a four-month high of $102.07 on Tuesday.

Macroeconomics & Central Banks

Bank of Japan Raises Rates to 1.25% as Yen Slides Despite Hawkish Framework

The Bank of Japan raised its policy rate by 25 basis points to 1.25%, taking borrowing costs to their highest level since 1995. The move had been widely anticipated, but the yen weakened sharply after the decision, with markets focusing on dissent within the board and on whether Governor Kazuo Ueda’s guidance matched aggressive expectations for further tightening.

The decision was split, with board members Toichiro Asada and Ayano Sato opposing the increase. The statement said Japan’s economic activity and prices were developing broadly in line with the baseline scenario presented in the July 2026 outlook, reinforcing the bank’s existing tightening framework. Governor Ueda also signalled readiness to raise rates further, but that did not prevent a broad selloff in the yen.

Market reaction was pronounced across currency crosses. USD/JPY jumped toward 156.95 after the announcement, traded around 157.11 later in the session and was near 158.00 in European trade. EUR/JPY rose toward 181.00, GBP/JPY moved beyond 209.50 and AUD/JPY climbed to around 112.60. Reports during the session described the move as a disappointment for investors who had positioned for a more forceful hawkish signal.

The policy debate is also being shaped by board composition. Reports highlighted concern that the terms of hawkish members Hajime Takata and Tamura expire in July next year, raising questions about how the balance of opinion on the board could shift in 2027. Friday’s inflation data was also cited as showing a slight easing in August, partly due to subsidy-related distortions, even as the BoJ continues to see inflation staying above target in the coming years.

Federal Reserve Hawkish Hike Keeps Dollar Supported

The Federal Reserve raised the federal funds target range by 25 basis points to 3.75%-4.00%, its first increase since July 2023 after five straight holds. The decision was unanimous, and the updated projections pointed to a higher policy-rate path alongside stronger growth and a slower return of inflation to target.

Chair Kevin Warsh said inflation was still too high and had been so for too long, adding that underlying inflation trends had not meaningfully improved and that too many categories were still posting increases above 3% on both six-month and 12-month measures. The Fed’s projections revised up real GDP growth for 2026 and 2027, lowered the unemployment-rate path and pushed the timing of a return to 2% PCE inflation out to 2029.

The policy message continued to underpin the US dollar. The Dollar Index tested 100.35, while reports during the session said markets were assigning a 54% probability to an October rate increase and an 88% probability to a December move. The immediate post-decision reaction included gains in the dollar and short-dated yields, while later reports noted that the 10-year Treasury yield had eased to about 4.93% after briefly rising above 5.0% earlier in the week.

Bank of England Holds at 3.75% and Slows Quantitative Tightening

The Bank of England left Bank Rate unchanged at 3.75% in a 6-3 vote, with Huw Pill, Megan Greene and Catherine Mann again backing a quarter-point increase. The decision marked a sixth straight hold, but the Monetary Policy Committee said the inflation backdrop had become more challenging and that upside risks had increased since July.

The bank said consumer-price inflation was now seen rising to around 3.75% in the fourth quarter and slightly above 4% in early 2027, with some reports citing a 4% reading in the first quarter of 2027. Officials linked much of that shift to higher energy prices. Governor Andrew Bailey said that if the Middle East conflict persisted for an extended period and the risk of second-round effects increased, policy would likely have to tighten, while also noting that there had so far been little evidence of material second-round effects in wages and prices.

The BoE also set out a slower multiyear quantitative-tightening plan. Its gilt holdings are due to fall by an average of £46 billion a year through 2034, including £20 billion of annual sales, and active gilt sales will be paused for six months. The change supported gilts, with 30-year yields falling about 12 basis points. Sterling weakened after the decision, with GBP/USD near 1.3350 after touching 1.3336 and EUR/GBP pushing toward 0.8600.

RBA Officials Keep Tightening Option Open as Inflation Risks Build

Reserve Bank of Australia officials kept a hawkish tone, supporting the Australian dollar and reinforcing the message that further tightening remains possible if inflation does not ease sufficiently. Governor Michele Bullock told a parliamentary committee that inflation remained too high and that recent developments suggested some upside risks to prices were materialising, particularly because of tensions in the Middle East.

Bullock said risks to the outlook had been skewed to the upside at the August board meeting and that liaison with firms showed many were passing on higher input costs. She added that labour-market indicators remained near, but slightly tighter than, full employment, while growth in the economy was slowing and housing-market conditions had softened.

Deputy Governor Andrew Hauser said the key question was whether the tightening delivered so far would be enough to return inflation to target within a reasonable timeframe. The RBA has kept its policy rate unchanged at 4.35% after three consecutive increases earlier this year. The Australian dollar strengthened during the session, with AUD/USD trading around 0.7120 to 0.7125.

Lagarde Repeats Meeting-by-Meeting ECB Approach

ECB President Christine Lagarde said the central bank would continue to decide on interest rates meeting by meeting. She also said growth was a bit more promising than previously thought and that policymakers were still not seeing second-round inflation effects.

The remarks did not trigger a significant market reaction, with EUR/USD trading near 1.1485 during the session.

PBoC Signals No Immediate Credit-Driven Stimulus

People’s Bank of China Governor Pan Gongsheng signalled that Beijing is not preparing an imminent credit-driven stimulus response, framing weaker loan growth as part of structural economic upgrading rather than a sign of distress.

The remarks followed August credit data showing aggregate financing, loan expansion and M2 money-supply growth all weakening more than expected. Reports said the central bank appeared comfortable with slower credit growth even as the property sector continued to weigh on balance sheets and consumer confidence remained subdued.

The stance suggests the policy burden is shifting toward trade diplomacy ahead of the planned Xi-Trump summit, rather than toward near-term monetary easing.

Energy & Geopolitics

Oil Retreats as Saudi Supply Measures and Diplomacy Ease Immediate Disruption Fears

Oil prices pulled back from recent highs as markets reassessed the scale of near-term supply disruption linked to the US-Iran conflict and regional shipping chokepoints. WTI traded around $96.40 in Asian hours and near $95 later in the session, heading for its first weekly decline in three weeks after reaching a four-month high of $102.07 on Tuesday.

Saudi Arabia moved to restore the damaged East-West pipeline to its Red Sea coast, with reports saying about half of its capacity could return within days. Saudi cargoes were also being offered to Asian refiners outside the Strait of Hormuz, including through Oman, helping to reassure markets that alternative routes remained available.

Some tanker traffic also continued through the Strait of Hormuz, while diplomatic efforts remained active. Reports cited upcoming discussions between US President Donald Trump and Gulf leaders, as well as a Reuters report that Beijing had privately asked Iran to help rein in Houthi militants after an appeal from Riyadh. The combination of supply adjustments and diplomacy helped ease some immediate fears even as the regional security backdrop remained fragile.

IRGC Says Togolese Tanker Was Struck in Strait of Hormuz

Iran’s Islamic Revolutionary Guard Corps said a Togo-flagged oil tanker was struck while attempting what it described as an illegal passage through the Strait of Hormuz. The reported attack added to concerns over shipping security in one of the world’s most important oil transit routes.

The incident came as markets were simultaneously weighing signs that some tanker traffic was still moving through the strait and that regional governments were trying to stabilise supply routes.

Regulation & Corporate Developments

US Regulators Advance Tokenized-Market Framework

US regulators took two separate steps affecting digital-asset market infrastructure. The Securities and Exchange Commission granted conditional exemptive relief to tokenized securities venues for five years, allowing them to trade tokenized national market system stocks by accessing liquidity pools under a regulated framework.

Separately, the Commodity Futures Trading Commission issued a no-action position for eligible passive software providers that facilitate access to regulated futures markets. The relief applies to software connecting users with registered futures commission merchants, introducing brokers and designated contract markets, and means the division will not recommend enforcement action solely for failure to register as an introducing broker or associated person when specified conditions are met.

The CFTC move was presented as targeted regulatory relief while broader digital-asset market-structure legislation, including the CLARITY Act, remained stalled in Congress.

S&P Global Agrees to Buy OpenZeppelin

S&P Global agreed to acquire blockchain security firm OpenZeppelin as it expands its digital-asset and on-chain risk-assessment capabilities.

OpenZeppelin’s smart-contract library underpins more than $37 trillion in value transferred and the company has completed more than 900 security engagements. S&P Global said the acquisition would strengthen its ability to provide security assessments, benchmarks and intelligence as financial markets adopt blockchain-based infrastructure.

OpenZeppelin will continue to operate under its existing name, with chief executive Demian Brener remaining in charge of the business unit.