Markets Brace for Pivotal Week: BoE and Fed Decisions in Focus

Interest Rates & Inflation

Region	Interest Rate	Inflation
UK	4.0%	3.8%
EU	2.15%	2.1%
US	4.5%	2.9%

GBP

Sterling faces a pivotal week with key data releases ahead of the Bank of England’s policy decision on Thursday.

• Tomorrow brings the latest UK employment and wage figures, followed by Wednesday’s August CPI report. These will set the tone for the MPC. Unless we see a sharp fall in pay growth or services inflation, the Bank is likely to maintain its hawkish narrative from August.
  
• Markets currently price less than one cut this year, with around 40 basis points of easing expected by next summer. Sticky inflation remains the bigger concern compared to slowing activity data.
  
• UK growth figures have been underwhelming. GDP stagnated in July while industrial and manufacturing output contracted, keeping alive expectations for a further rate cut later this year.
  
• GBP/USD is testing resistance near 1.3600, with a dovish Fed outcome potentially pushing it higher. EUR/GBP continues to trade comfortably within the 0.86–0.87 range (GBP/EUR 1.15–1.16).
  

EUR

The Pound to Euro slipped back towards 1.1550 last week after UK growth data disappointed and the ECB signalled its rate-cutting cycle is complete.

• Sterling’s softer backdrop leaves GBP/EUR vulnerable, particularly if this week’s UK jobs and inflation reports surprise on the downside. Analysts warn the pair could struggle to hold above 1.1580.
  
• On the euro side, Fitch downgraded France to A+, but the move had little immediate impact. Markets are watching how new Prime Minister Lecornu handles fiscal reform.
  
• ECB speakers remain in focus, with Isabel Schnabel striking a hawkish tone, suggesting the current 2% deposit rate is still accommodative. Her comments support short-dated euro rates and add mild upside risks for the currency.
  
• EUR/USD continues to hold a narrow range around 1.1700–1.1750 ahead of Wednesday’s Fed decision.
  

USD

The US Dollar remains under pressure as traders look ahead to Wednesday’s Fed meeting, where a 25bp cut is almost fully priced.

• Weak US labour market data has been the key driver. August NFP showed just 22,000 new jobs versus 75,000 expected, with unemployment rising to 4.3% — the highest since 2021. Revisions also showed nearly a million fewer jobs created over the past year than previously reported.
  
• Producer inflation softened in August, while consumer sentiment fell sharply, reinforcing expectations for multiple Fed cuts by year-end. Markets are now pricing three reductions in total, with a small chance of a larger 50bp move this week.
  
• The Dollar Index (DXY) is trading near seven-week lows. A dovish shift in the Fed’s projections could see further downside, although geopolitical tensions in the Middle East and Eastern Europe have provided occasional safe-haven support.
  
• Beyond the FOMC, key US releases this week include August retail sales (Tuesday), weekly jobless claims (Thursday), and Treasury TIC flows (Thursday).

Why this matters
This week’s data releases and political developments could create volatility in FX markets. Businesses and individuals with upcoming currency requirements should monitor these events closely, as even small movements in exchange rates can materially impact costs and profits. Our team can help you put strategies in place to protect against adverse moves and take advantage of opportunities.

📞 Call us on 020 3876 5432 or 📧 email [email protected] to discuss how we can support your currency needs this week.