This week brings the closest thing currency markets have seen to a synchronised central bank moment in some time. The European Central Bank raised interest rates again last Thursday, its second hike of 2026, as the conflict in the Middle East continues to push energy costs and inflation higher across the eurozone. The Federal Reserve follows on Wednesday, and the Bank of England on Thursday, both weighing similar pressures.
Behind each decision sits a common thread: an energy shock that has pushed inflation higher in the US, the eurozone and the UK all at once, even as growth in each economy has held up reasonably well. UK inflation data, due first thing Wednesday, will be one of the last pieces of the puzzle before the Bank of England speaks.
ECB hikes for the second time as the Iran conflict drives inflation to 3.3%
The European Central Bank raised its deposit rate by a quarter point to 2.5% last Thursday, its second increase since the conflict in Iran began pushing energy prices higher. The decision was unanimous, and President Christine Lagarde described it as a straightforward call given the circumstances. Eurozone inflation rose to 3.3% in August, driven largely by energy, while core inflation eased slightly to 2.4% and services inflation cooled to 3.0%. The bank stopped short of committing to further increases, saying it will continue to decide meeting by meeting, but markets are already pricing in a reasonable chance of a third hike before the end of the year.
The Fed’s turn: strong US data lifts the odds of a September increase
The Federal Reserve’s decision on Wednesday follows a run of data pointing the same way. August’s jobs report showed payrolls rising by 162,000, far ahead of the 53,000 expected, while last week’s inflation figures showed core prices rising 0.3% on the month, a touch hotter than forecast, with the annual core rate at 2.4%. Markets are now pricing a substantial probability of a quarter point increase, a marked shift from earlier in the summer when a pause looked more likely. Fed chair Kevin Warsh’s hawkish tone at Jackson Hole in late August set the direction of travel, and this week’s data has largely reinforced it rather than pushed back against it.
Sterling caught in the middle as the Bank of England follows a day later
The Bank of England meets on Thursday, a full day after the Fed, which means sterling will already have absorbed the US outcome by the time the UK’s own decision lands. No change to the 3.75% base rate is widely expected, with the more interesting question being the tone of the accompanying guidance. UK inflation data for August, published Wednesday morning, will be one of the last inputs the Monetary Policy Committee sees before it votes; at the July meeting, the Committee held rates by a 6 to 3 vote. Governor Andrew Bailey told the Treasury Select Committee earlier this month that inflation risks were skewed to the upside given the Middle East conflict, language that leaves the door open to a firmer tone even without an actual rate move this week.
The week ahead:
- German ZEW economic sentiment (September) – 15/09 – EURUSD
- UK inflation (August) – 16/09 – GBPUSD, GBPEUR
- US Fed rate decision – 16/09 – GBPUSD, EURUSD
- Bank of England rate decision – 17/09 – GBPUSD, GBPEUR
With three major central banks all making decisions inside a few days of each other, this is a good week to speak with your currency specialist about how the outcomes could affect any transfers you have coming up.
