Global Markets Brace for Fed Rate Hike as Oil Tops $91

The Japanese yen stabilized near the critical 160-per-dollar level on Tuesday as currency markets remained cautious amid rising U.S. interest-rate expectations, renewed U.S.-Iran tensions and surging oil prices.

USD/JPY traded around 159.81 after briefly moving above 160 during each of the previous two sessions. The threshold remains closely watched because the yen has surrendered more than half of the gains generated by the record Japan-U.S. currency intervention that began in late July.

U.S. Treasury Secretary Scott Bessent said he expects the Japanese government and Bank of Japan to take steps that could strengthen the yen. NHK reported that Bessent also told Japanese Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda that additional interest-rate hikes were needed.

Meanwhile, the U.S. dollar index held near 99.51 as markets reassessed the Federal Reserve outlook following Chair Kevin Warsh’s hawkish Jackson Hole remarks. Bloomberg swaps indicated a 74% probability of a September Fed rate hike, compared with 34% before Warsh’s speech. CME FedWatch put the odds at 65%.

Investors are now awaiting U.S. nonfarm payrolls and next week’s inflation data for clearer signals before the Fed’s September 17 decision.

Geopolitical risks also supported volatility across global markets. Brent crude climbed 0.7% to roughly $91.10 per barrel after the U.S. and Iran exchanged direct strikes for the first time in about a month. Higher energy prices have added to inflation concerns and pushed global bond yields toward multi-year highs.

In Asia, China’s yuan remained relatively stable despite the RatingDog China General Manufacturing PMI rising to 51.5 in August from 50.9, beating expectations of 51. USD/CNY and USD/CNH traded near 6.72.

The Indian rupee strengthened, with USD/INR falling 0.21% to 94.964 after India reported 7.8% annual economic growth for the April-June quarter.

Markets will next focus on central-bank decisions from New Zealand and Canada, alongside comments from BOJ officials for further clues about whether Japan could raise interest rates in September.