The Fed’s long-awaited interest rate cut finally arrived last week, giving the dollar a much-needed lift and driving exchange rate movements
Market Recap:
The dollar experienced a turbulent week after the Federal Reserve cut interest rates by 25bps last week which initially saw a move to near 3 year highs on GBPUSD before a retracement of over 1.5%, following more hawkish than expected comments by Chair Powell. The greenback was further boosted by revised GDP forecasts that suggested resilience in the US economy.
The dollar strengthened against both the euro and pound, recovering some of the ground it had lost over previous months. Nevertheless, it remains over 5.2% down against the euro and nearly 1.1% down against the pound over the last year.
The pound slid further after figures showing public sector borrowing hitting their highest level in five years, giving Chancellor Rachel Reeves little room to manoeuvre before November’s Autumn budget.
Is eurozone interest rate easing over?
The European Central Bank left rates unchanged for the second meeting in a row last month, and rates have now remained stable at 2% since early summer. With competing risks to the eurozone economy from US tariffs and food price inflation, it seems likely that the current easing cycle is now at an end, though policymakers insist that all options remain open. Inflation eased in August to 2%.
Elsewhere, the Bank of England also left rates unchanged, at 4%, while the US looks likely to cut rates further before the end of the year.
Coming Up:
In a relatively quiet week, flash PMI data in Europe will be closely analysed for clues about the underlying state of economies. PMIs are measures of economic confidence, with manufacturing and services flashes expected from Britain and the eurozone (Tuesday). Also on Tuesday, a speech by Fed chairman Powell will be monitored for signals about the future direction of monetary policy after last week’s rate cut.
