European Inflation, UK, and U.S. Rate Decisions Take Centre Stage
GBP
GBP/USD has risen to 1.3180 (interbank), while GBP/EUR is trading at 1.1853 (interbank).
The Pound continues to climb as investors anticipate the Bank of England’s policy-easing cycle will be less aggressive than that of the Federal Reserve.
This week, all eyes are on the BoE’s interest rate decision, with expectations that it will maintain the policy rate at 5% in its upcoming meeting.
In August, the BoE implemented its first rate cut since 2020 amidst cooling inflation. However, consumer prices rose again to 2.2% year on year in July, following a two-month dip to 2%. High service prices and wage growth still pose risks to inflation re-accelerating.
The UK is also set to release inflation data for August on Wednesday, with forecasts suggesting inflation will hold steady at 2.2%. Flat economic growth over the last two months may push the BoE towards another cut in November.
No significant events are scheduled for today
EUR
EUR/USD has increased and is currently trading at 1.1118 (interbank).
Last week, the ECB reduced its deposit facility rate by 25 basis points to 3.50%, as expected, but refrained from providing a pre-set path for future cuts. ECB President Christine Lagarde reiterated that future rate decisions will be based on incoming economic and financial data, as well as inflation and monetary policy dynamics.
Financial markets anticipate another ECB rate cut by the end of the year due to ongoing concerns over Germany’s economic outlook.
This week, the final Eurozone Consumer Price Index (CPI) for August is under the spotlight. Preliminary figures showed inflation cooled to 2.2% year on year, the slowest rise since July 2021, although core inflation remains high at 2.8%. The final data is expected to match the initial estimate, further confirming the inflation slowdown.
Additionally, the German ZEW Economic Sentiment Index for September will be published tomorrow, offering insights into the country’s economic health.
Today’s Events (GMT):
13:00 - ECB's Lane Speaks
USD
The Dollar Index, which measures the currency against a basket of six major currencies, is down 0.15% at 100.87.
Fed speakers and recent data have led to speculation over the size of this week's anticipated rate cut, with debates on whether the Fed will address labour market weakness with aggressive cuts or take a more cautious approach.
This week’s focus is on the Federal Reserve’s interest rate decision on Wednesday, where the market is almost certain that the Fed will start cutting rates. However, last week’s higher-than-expected core inflation data has reduced the chances of a 50 basis point cut.
According to the CME FedWatch Tool, the probability of a quarter-point rate cut has risen to 57%, up from 50% in August. Some analysts believe the Fed may opt to front-load its rate cuts, as its decisions have lagged behind other central banks.
Also of interest this week is the U.S. retail sales data for August, which is due tomorrow and will offer insights into the direction of consumer spending.
No significant events are scheduled for today
CAD
USD/CAD is currently trading at 1.3578 (interbank) in today’s session.
The Canadian Dollar has weakened amid growing expectations of further rate cuts by the Bank of Canada (BoC).
Oil prices have risen, with Brent crude up by 0.5% to $71.99 and West Texas Intermediate crude increasing to $69.26 per barrel.
This week, the focus will be on tomorrow’s inflation reading for August. Canada’s annual inflation rate slowed to 2.5% in July, down from 2.7% in June. This report could provide new insights into the BoC’s outlook ahead of its October policy meeting.
In addition, senior deputy governor Carolyn Rogers will speak at an event in Toronto tomorrow, and the BoC will release the summary of deliberations from its latest rate decision on Wednesday. BoC Governor Tiff Macklem is scheduled to give a speech on Friday.
No significant events are scheduled for today
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