The upcoming week is poised to be pivotal for global financial markets, with central bank decisions taking center stage. The U.S. dollar has been on a downward trajectory ahead of the Federal Reserve's FOMC meeting on Wednesday. Market participants are increasingly pricing in a 50 basis point rate cut, with odds now exceeding 60%. This anticipation has exerted pressure on the dollar, leading to gains in major currencies like the euro and the pound. The euro's modest rise has been supported by firmer bund yields and comments from European Central Bank officials suggesting a cautious approach to rate adjustments.

Comparatively, the Bank of England's meeting on Thursday adds another layer of complexity. The pound has advanced as traders speculate on the likelihood of a 25 basis point rate cut, currently priced at around 36%. While the BoE appears less dovish than the Fed, any unexpected moves could significantly impact sterling. Inflation data due on Wednesday will further influence expectations. The divergence in central bank policies underscores a key market sentiment: while the Fed seems ready to ease aggressively, European counterparts are signaling a more measured approach.

Market risks are notably heightened this week. Commodity markets reflect underlying uncertainties, with gold reaching a fresh record near $2,589 per ounce amid dollar weakness and lower Treasury yields. Oil prices have surged due to concerns over Hurricane Francine's impact on Gulf of Mexico output. Equity markets remain tentative; the S&P 500's slight rise of 0.07% indicates cautious optimism. Investors should be prepared for volatility, especially if central bank decisions deviate from expectations. A smaller rate cut from the Fed or hawkish tones from the BoE could prompt swift market corrections.

Additionally, U.S. economic data releases could further sway market sentiment. The August retail sales and industrial production figures, set to be released on Tuesday, will offer crucial insights into the health of the U.S. economy. Stronger-than-expected data might challenge the prevailing expectation of an aggressive rate cut by the Fed, potentially leading to a rebound in the dollar and shifts in currency pair dynamics like EUR/USD and GBP/USD. Conversely, weak data could reinforce expectations of significant monetary easing.

Investors should also monitor developments in the commodity-linked currencies such as the Australian dollar. The AUD/USD pair has been buoyed by commodity gains and a weaker U.S. dollar, trading above its 21-day moving average. However, any shifts in global risk appetite or changes in commodity prices due to geopolitical tensions or natural disasters like Hurricane Francine could introduce additional volatility. Market participants are advised to remain nimble and vigilant, as the interplay between central bank policies, economic data, and external events could create rapid shifts in market dynamics.