Markets await Fed and BoE interest rate decisions this week
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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 ▲