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Bannockburn Global Forex Drivers for the Month Ahead September 1, 2021 View Online Economic Calendar September 3: US August Employment Report September 7: Reserve Bank of Australia September 8: Bank of Canada September 9: European Central Bank September 13: Norway Election September 14: US August CPI September 20: Canada Elections September 21: Sweden Central Bank September 22: Bank of Japan September 22: Federal Reserve September 22: Brazil Central Bank September 23: Bank of England September 23: Norway Central Bank September 23: Turkey Central Bank September 26: German Elections September 29: Japan’s LDP leadership contest September 30: Mexico Central Bank September 2021 FX Outlook The US dollar traded higher for most of August, lifted by the second month of more than 900k rise in non-farm payrolls and the prospects of the Federal Reserve slowing its bond purchases before the end of the year. Although covid cases have risen dramatically, powerful fiscal and monetary stimulus leaves the US among the best positioned to cope with it. The FDA general approval of the Pfizer vaccine, rather than just emergency authority, and the recognition that the delta variant is so contagious that US inoculation rates have increased recently. In Afghanistan, where folly was followed by blunder, the US may suffer from the loss of prestige, but there are material risks to Europe, in the form of a refugee crisis, and to China and Russia, as Islamic fundamentalism on their borders risks a contagion of its own. The September FOMC meeting is expected to provide more clarity of the Fed’s course. The July minutes confirmed what the market has suspected since earlier this year. Tapering was likely to begin before the end of the year. The new dot plot may show that the seven officials who expected a hike next year would be appropriate in June may have won over a few more converts. Making a few conservative assumptions, if the Fed were to stand pat until September 2022 and hike rates then, fair value for the September Fed Funds contract would be 15 bp. It finished in August at 13.5 bp. If the Fed were to stand pat until December 2022, a quarter-point hike would imply fair value for the December Fed Funds contract at 23 bp. It settled in August at 24 bp. The ECB and BOJ will also update their economic projections. The pandemic and extended emergency may see the BOJ downgrade its economic assessment and shift the recovery into Q4 and 2022. Deflationary forces were evident, but the BOJ does not appear prepared to take fresh initiatives. Eurozone economic activity remains strong, though supply chain disruptions are cramping output. The ECB accelerated its emergency bond-buying in March and will again review its decision. The emergency program is currently scheduled to end in March 2022, perhaps before the Fed is through its tapering. Norway is expected to be the first high-income country to lift rates this side of the pandemic. In fact, if it doesn’t, it would be more disruptive than if it does. New Zealand, which was widely expected to raise rates in August, pushed the decision until October due to the lockdown instituted when new covid cases were found. Several emerging market central banks, including Russia, Brazil, and the Czech Republic, will likely continue their rate hiking cycle. Mexico, which hiked in July and August, will is expected to pause in September. Politics, never far from the surface in the foreign exchange, the market is front and center in September. Germany will have a new Chancellor for the first time since 2005. The recent polls suggest a Social Democrat-Green-Free Democrat coalition is possible. Canada’s Trudeau called a snap election to try to secure a parliamentary majority. Polls suggest his gambit is a coin toss. Japan’s Liberal Democratic Party holds a leadership challenge. Prime Minister Suga support has not recovered, and while the LDP may find an alternative to him, programmatically, there do not seem to be sharp policy differences. Norway also goes to the polls, and despite the government getting high marks for addressing the pandemic, unlike Suga, the Conservative government’s bid for a third term will probably be handily defeated. Click Here to read the full monthly outlook