Home Daily Commentaries Markets await Fed and BoE interest rate decisions this week

Markets await Fed and BoE interest rate decisions this week

Daily Currency Update

Markets are anticipating a historic Federal Open Market Committee interest rate decision later this week from the US, with the central bank expected to cut interest rates for the first time since 2020. While a cut is fully priced into the dollar, the size of the cut remains a topic of debate. Most expect Fed Chair Jay Powell and the committee to start with a 25bp cut on Wednesday evening, bringing the cost of borrowing down to 5.25%. However, the likelihood of a 50bp cut has increased in recent days, and the Fed might opt for a larger cut due to recent labor market softness. On Thursday, the Bank of England is expected to keep rates on hold at 5%, as inflation, particularly in the service sector, remains sticky. With the prospect of a Fed cut looming, the US dollar has started the week on the back foot, with EUR/USD pushing back through 1.11 this morning and GBP/USD rising to around 1.3160.

Key Movers

It’s a quiet start to the week, with only the US Empire State Manufacturing Index as the notable data out today. Tomorrow, we have US Retail Sales m/m, followed by Wednesday morning’s Consumer Price Index from the UK, which is expected to show inflation holding steady at 2.2% y/y. If this undershoots, the chances of a rate cut from the UK could increase, to the pound’s detriment. We round off the week on Friday with UK Retail Sales data, predicted to show 0.4% growth in August.

Expected Ranges

  • GBP/USD: 1.3040 - 1.3205 ▲
  • GBP/EUR: 1.1795 - 1.1900 ▲
  • GBP/AUD: 1.9495 - 1.9640 ▲
  • EUR/USD: 1.1075 - 1.1200 ▲

Written by

Jake Trask

OFXpert

As a Senior Corporate Client Manager, Jake and his team manage a diverse portfolio of 250 businesses to meet their varied foreign exchange needs. He enjoys untangling the complexities of foreign exchange dynamics, constantly striving to provide clients with the most informed insights and strategies to navigate these fluctuations successfully.