The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1022 GMT - Capital expenditure by large cloud computing providers, also known as AI hyperscalers, is seen as the most likely source of a widespread credit crisis, the Bank of America global fund manager survey for September shows. A total of 42% of fund managers ranked AI hyperscalers' spending as most likely source of a credit event. Government debt is ranked as the second most likely source of a global credit event, according to 25% of respondents. (miriam.mukuru@wsj.com)

1011 GMT - The Bank of England could keep interest rates unchanged at 3.75% over the coming year due to weakness in the U.K. jobs market, Jefferies' Modupe Adegbembo says in a note. Tuesday's jobs data showed that payrolled employees dropped by 26,000 between July and August, indicating reduced labor demand, Adegbembo says. Markets' pricing of aggressive BOE rate hikes "remains difficult to reconcile with subdued wage growth and soft employment indicators", she says. Investors fully price in four BOE rate rises by mid-2027, and a potential fifth rate increase by November, LSEG data show. (miriam.mukuru@wsj.com)

1010 GMT - Investors are less convinced that the Federal Reserve will refrain from raising interest rates before November's U.S. midterm elections, Bank of America's global fund manager survey for September shows. Some 52% of investors expect no rate rise before the midterms, down sharply from 72% in the August survey. The survey shows 41% now expect a rate rise before the midterm elections, compared to 22% in August. (renae.dyer@wsj.com)

1009 GMT - The dollar could extend its gains after realigning with supportive short-term drivers, ING's Francesco Pesole says in a note. The dollar is lifted by the prospect of the Federal Reserve raising interest rates along with higher energy prices and soft risk sentiment given its position as an energy exporting currency and safe haven asset. The dollar is also supported by a pullback in the yen, he says. The dollar could trade in tighter ranges until the Fed's rate decision on Wednesday but risks remain on the upside for the currency, he says. The DXY dollar index rises 0.2% to 99.608 after reaching a one-month high of 99.736 Monday. "DXY at 100.0 remains a credible near-term target," Pesole says. (renae.dyer@wsj.com)

0958 GMT - Fund managers have the most underweight positions in bonds in more than four years, Bank of America's global fund manager survey for September shows. The survey shows investors are a net 48% underweight on bonds, the biggest underweight position since May 2022, BofA says in a press release accompanying the survey. Fund managers have been net underweight bonds for the past 17 months, BofA says. The findings come as bond yields globally have recently hit multiyear highs. (jessica.fleetham@wsj.com)

0953 GMT - A majority of fund managers surveyed in Bank of America's global fund manager survey for September consider the biggest tail risk to be a "disorderly rise in bond yields." A tail risk event is one that has a low probability of happening, but which would likely have a big impact if it occurred. A total of 33% of fund managers surveyed expressed this view, which comes as bond yields globally have recently hit multiyear highs, the survey shows. This is a change from the August survey, when worries about an AI bubble were considered the biggest tail risk. A total of 28% of those surveyed cited AI bubble as the biggest tail risk, down from 32% last month, the survey shows. (jessica.fleetham@wsj.com)

0937 GMT - Sterling looks vulnerable as the Bank of England is likely to keep interest rates steady Thursday as other central banks lift rates, Monex Europe analysts say in a note. The Federal Reserve and Bank of Japan look set to raise rates on Wednesday and Friday respectively, while the European Central Bank increased rates last week, they say. In contrast, the BOE could vote 6-3 to leave rates at 3.75%, they say. Soft wage growth in Tuesday's U.K. labor market data reinforces this divergence, weakening sterling, they say. Sterling falls 0.2% to $1.3470. The euro rises 0.1% to 0.8560 pounds. (renae.dyer@wsj.com)

0934 GMT - The Swiss franc could replace the Japanese yen as the favored funding currency in carry trades, where investors borrow in low-yielding currencies to buy higher-yielding currencies, Rabobank's Jane Foley says in a note. If the Bank of Japan indicates a faster pace of policy tightening on Friday, the market could look to the franc given Switzerland's low rates, she says. However, some might be deterred by the franc's well-established safe-haven status, meaning it could increase sharply if market anxieties rise. The euro falls 0.2% to 0.9424 francs, having reached a 17-month high of 0.9474 on Monday, LSEG data show. Rabobank targets 0.95 in three months, although it doesn't expect strong gains due to eurozone political risk next year. (renae.dyer@wsj.com)

0924 GMT - The cost of insuring euro credit against default climbs due to a deterioration in market sentiment as AI concerns and geopolitical tensions mount. Chief executives of major AI companies said they need to slow the pace of development, causing tech stocks to drop. In addition, a widening conflict in the Middle East has reduced appetite for risk, hurting risk assets such as stocks and corporate bonds. The iTraxx Europe Crossover index of euro high-yield credit default swaps rises 2 basis points to 265bps, the highest since July 29, S&P Global Market Intelligence data show. (miriam.mukuru@wsj.com)

0830 GMT - Sterling is at risk of falling if the Bank of England remains cautious about raising interest rates, ING's Francesco Pesole says in a note. The BOE is likely to leave rates on hold Thursday and stress there is no evidence price pressures are extending beyond energy prices, he says. BOE Governor Andrew Bailey could also push back against aggressive rate rise expectations. U.K fiscal worries ahead of the October budget and growing pressure on the U.K. government to allow independence referendums in Scotland, Wales and Northern Ireland could also weigh on sterling, he says. The euro rises 0.1% to 0.8560 pounds and ING targets an increase to 0.8700 pounds in the coming weeks.(renae.dyer@wsj.com)

0819 GMT - Spillovers from rising global government bond yields into the foreign exchange market have been modest so far, MUFG Bank's Lee Hardman says in a note. This is highlighted by low measures of volatility in the forex market, he says. However, the Australian dollar, New Zealand dollar, Swedish krona and emerging markets currencies have underperformed. "Downside risks for those currencies would intensify if rising bond yields and energy prices triggered a deeper correction lower for risk assets heading into year end," he says. (renae.dyer@wsj.com)

0816 GMT - Markets await U.K. inflation data due to be released on Wednesday to gain insights on the impact of the Middle East conflict and high energy prices, Tickmill Group's Patrick Munnelly says in a note. "August CPI print takes on outsized importance as policymakers gauge whether imported energy costs will spill over into broader wage setting," Munnelly says. Tuesday's U.K. jobs data were weak, showing payrolled employees declined by 26,000 between July and August. The unemployment rate remained relatively high at 4.9% in the three months to July.