Central banks turn! How can FED, BoE and BoJ move the markets?

Central banks are pivoting as inflation cools unevenly, and growth softens. In the U.S., inflation has crept back toward ~3% while hiring slows after downward revisions. The Fed is poised to begin cuts in September, supporting Treasuries and leaving the dollar mixed-to-soft. The ECB kept its Deposit Rate at 2.00% and, with medium-term inflation forecasts below target, is likely to deliver one final 25 bp cut in December. The BoE should hold at 4.00% next week, signalling meeting-by-meeting easing from November into H1-2026 as UK activity stalls. The BoJ is expected to hold at 0.50% but keep gradual normalization on the table; guidance and any hint on wage-inflation dynamics will steer the yen. Elsewhere, Norway and Mexico edge toward the end of easing cycles; Brazil stays on hold; Turkey’s surprise 250 bp cut heightens lira risk; and Argentine politics keep risk premia elevated. Markets: duration supported; equities cautious; FX bifurcated.

U.S.A

Economic Review

Disinflation alongside softer activity keeps the case for Fed easing intact. Headline CPI rose 0.4% in August (2.9% y/y) and core CPI increased 0.3% m/m (3.1% y/y), with apparel and used vehicles lifting core goods and travel services keeping core services sticky; these details imply core PCE running near 2.9% y/y. Producer prices echo the picture: core PPI advanced 2.8% y/y, while the volatile “trade services” component fell 1.7% on the month, pointing to margin compression. On the jobs side, the BLS’s preliminary benchmark revision cut April 2024–March 2025 payrolls by 911K—the largest downward revision on record—halving average monthly gains to 73K and aligning with the latest three-month average of roughly 29K. With inflation still above target but labor wobbling, we expect the Fed to begin cutting in September and deliver about 125 bps of easing by June.

High-frequency data suggest growth is slowing but not stalling. Wholesale sales rose 1.4% m/m in July against a 0.1% rise in inventories, signaling healthier stock dynamics. Consumer credit expanded $16.0B and Redbook sales were up 6.6% y/y, underscoring steady retail momentum even as sentiment cools (Michigan prelim: headline 55.4; expectations 51.8; 1-yr/5-yr inflation expectations 4.8%/3.9%). Producer-price details showed broad cooling versus prior months—headline PPI −0.1% m/m, +2.6% y/y; core −0.1% m/m, +2.8% y/y—still closer to 3% than 2% on core trends. Housing remains constrained by affordability but is responsive to lower rates: the MBA 30-year mortgage rate eased to 6.49%, with applications up 9.2% w/w and refinancing improving. Energy data were softer for oil (EIA crude +3.94M bbl; gasoline +1.46M; natgas storage +71 Bcf), while rig counts ticked up (oil 416; total 539). Fiscal and liquidity indicators show an August deficit of $345B, a Fed balance sheet near $6.606T with reserves at $3.151T, and strong auction demand pulling yields lower (3Y 3.49%, 30Y 4.65%). Net: Treasuries remain supported; the dollar’s near-term bias is mixed-to-soft; equities hinge on retail strength and housing durability.

USA Economic Outlook — Week Ahead

The U.S. enters the week with consumption still resilient but clearly decelerating, housing momentum fragile, and monetary policy poised to turn more supportive as labor slack builds. July retail sales rose 0.5% (June revised to 0.9%), led by motor vehicles, clothing, sporting goods, and non-store retail, while home-improvement and restaurants softened—consistent with housing-linked and discretionary fatigue. The control group climbed 0.5%, lifting Q3 consumption prospects to roughly 1.5% saar from 0.7%. For August, headline retail sales are expected to cool to about 0.4% m/m (ex-autos ~0.5%), as weakening job security and softer sentiment temper the pace into year-end.

Housing is unlikely to offset slower consumption. July starts rose 5.2% to a 1.428 million SAAR, the strongest since February, driven by multifamily; permits fell 2.2%, pointing to fleeting momentum. Builder surveys sit at their weakest since late 2022, with more than a third cutting prices (≈5% on average) and two-thirds offering incentives. Inventories are at decade-plus highs, buyer traffic is light, and mortgage rates—though off recent peaks—remain more than double the 2021 average, restraining activity. August starts are likely to pull back ~3.4% to ~1.38 million SAAR.

Policy is set to re-engage. After holding steady on July 30, the Fed faces softer labor data: three-month payroll gains average ~29K and unemployment has risen to 4.3%, the cycle high. We expect a September cut to a 4.00%–4.25% target range and a more dovish SEP (≈75 bps of 2025 cuts; 2026 median near 3.125%; longer-run neutral unchanged). Inflation remains the speed limit: core PCE is still ~1 pp above target, with tariffs re-igniting some goods inflation as services disinflation slows; our 2025 Q4/Q4 core PCE view is ~3.1%.

Market read-through: a modest August retail gain and softer housing should keep easing expectations intact, support front-end Treasuries, and leave the dollar mixed; a hot retail print would firm the USD temporarily, while a weak report would bull-flatten curves and pressure consumer-exposed equities.

USD & Wall Street — Week-Ahead Outlook 

Three catalysts dominate: August Retail Sales (Tue), Housing Starts/Permits (Wed), and the FOMC decision with dots and Chair Powell’s press conference (Wed). A 25 bp cut is broadly expected, so nuance matters: guidance that policy will proceed meeting-by-meeting should contain volatility; heavier emphasis on labor-market deterioration would favor duration and growth, while a firmer inflation focus would support the USD and value/cyclicals.

The dollar (DXY) has softened from early-September highs and is ranging in the high-97s. Options and futures skew toward a 25 bp cut with some tail risk of a larger move—typically a cap on the USD unless data surprise to the upside. A strong retail report, especially a firm control group, would likely push yields up and support the greenback. A miss, paired with softer housing, would bias DXY lower into the statement and dots. Positioning shows additional rate-cut bets and elevated rates OI, heightening sensitivity to Fed guidance. Technically, USD remains cautiously bearish with a key pivot near 97; a slowing On-Balance Volume points to waning dip-buying, though RSI ~47 implies bears aren’t fully in control.

On Wall Street, the S&P 500 sits near record highs after late-August peaks and fresh September prints. Friday closed higher as investors positioned for a cut, leaving sentiment constructive but balanced. A modest cut with explicit optionality should keep multiples supported; a hawkish surprise—or hotter-than-expected retail—could cheapen the front end and temper near-term risk appetite. Trend signals remain positive, and RSI below overbought is consistent with ongoing momentum. However, CFTC data show speculative net shorts deepening to ~−173.7K (from −161.1K), reflecting cautious hedging amid Fed uncertainty and stretched valuations. Elevated shorts can weigh on sentiment but also raise short-squeeze risk if momentum persists.

Bottom line: Base case contains USD and equities steady to higher under a cut-and-observe Fed. Upside USD risk stems from hot data or hawkish dots; equity downside risk from firmer data and tighter guidance, with positioning amplifying moves either way.

BoE Meeting & GBP — Preview for Thu, Sept 18, 2025

The Bank of England is widely expected to leave Bank Rate unchanged at 4.00%, following August’s finely balanced 25 bp reduction (5–4 vote). With growth stalling while inflation remains above target, the MPC is likely to underscore a data-dependent, meeting-by-meeting approach rather than pre-committing to a fixed easing path. Sensitivity to Wednesday morning’s CPI will be high: absent a decisive cooling in inflation, any further cuts are likely to be paced cautiously against sticky domestic price pressures and a fragile growth pulse.

On the macro backdrop, July GDP was flat on the month (0.0% m/m; +1.4% y/y; 3m/3m +0.2%), signalling a broad loss of momentum after a firmer June. Sectorally, services rose 0.1% m/m (3m/3m +0.4%), construction gained 0.2% m/m (+2.4% y/y), while industrial production fell 0.9% m/m (manufacturing −1.3% m/m; +0.2% y/y). On the demand side, BRC retail sales grew 2.9% y/y in August, but the trade deficit remained wide at £22.24B (with a narrower non-EU gap of £10.16B). Inflation expectations have firmed to 3.6% (from 3.2%). The NIESR tracker points to modest momentum (+0.3% in August). Pay growth is easing but remains historically elevated, keeping the MPC wary of underlying price persistence, particularly in services.

Inflation timing is pivotal. August CPI prints on Wed, Sept 17 at 07:00 UK—hours before the decision. A downside surprise would strengthen the case for additional easing later this year; an upside surprise would argue for patience and a more cautious tone at the pace of subsequent cuts.

In its guidance, the MPC will likely acknowledge softer activity while reiterating risks from wages and services inflation; keep QT on its existing path while preserving flexibility should liquidity conditions warrant; and avoid pre-signaling October, emphasizing that policy remains contingent on CPI, wages, and activity.

Market implications skew toward a contained response under a balanced hold. Gilts should remain supported at the front end, and GBP is likely range-bound, with direction set by the CPI print and the vote split. A hawkish hold—signaled by resilient services inflation, stickier wages, or fewer votes favoring cuts—would typically lift sterling and cheapen the front end. A dovish hold—on soft CPI and weaker demand cues—would reinforce expectations for another cut before year-end and weigh on the currency.

GBP/USD technical remain constructively bullish on the daily chart, with RSI ~57. A key pivot sits near 1.3200. Immediate resistance is 1.3360, followed by 1.3400; initial support is around 1.3200. A sustained break above 1.3400 would target higher highs, while a decisive move back below 1.3200 would caution for a deeper pullback.

BoJ Meeting & JPY — Preview for Friday, September 19, 2025

Policy call. In line with consensus, we expect the Bank of Japan to leave the short-term policy rate unchanged at 0.50%. The macro case for further normalization—tight labour markets, firm wage gains, and steady GDP—remains intact, but near-term caution is likely to prevail.

Political lens. Prime Minister Ishiba’s resignation and the early-October LDP leadership contest inject a period of political uncertainty that could spill over into markets. Against this backdrop, we push back our anticipated timing for the next BoJ hike from October to early 2026. The medium-term path will also hinge on whether incoming leadership pursues more expansive fiscal measures. Next week’s August CPI, after three months of deceleration, will be scrutinized for upside surprises. Until the political and fiscal outlook is clearer, the BoJ is likely to remain sidelined; our baseline assumes hikes resume in January 2026, lifting the policy rate toward ~0.75%.

Macro snapshot. Activity signals are mixed. Industrial production fell 1.2% in July after a strong prior month, and capacity utilization declined 1.1% m/m, remaining below trend. Investment indicators are firmer—machine-tool orders rose 8.1% y/y in August—while sentiment improved (Reuters Tankan 13, from 9). Monetary aggregates show modest expansion (M2 +1.3% y/y; M3 ¥2,219.7T). On the rates side, the 5-year JGB auction cleared up at 1.12% (from 1.06%), consistent with a slow drift toward normalization.

JPY outlook. Producer-price inflation has re-accelerated and core inflation is hovering near/above target, preserving a mild tightening bias if activity holds up. With the Fed likely to cut, U.S.–Japan rate differentials should narrow at the margin—a yen-positive impulse provided BoJ guidance is not more dovish than expected. Tokyo and Washington continue to frame FX intervention as a tool reserved for excess volatility, offering a conditional backstop against disorderly yen weakness.

Base case. A BoJ hold at 0.50% that keeps gradual normalization on the table—alongside a 25 bp Fed cut and meeting-by-meeting guidance—argues for modest JPY support via narrower spreads and range-bound trading unless the BoJ turns unexpectedly hawkish or the Fed less dovish than priced.

Risk skews. A stronger BoJ focus on upside inflation/wage risks—or softer U.S. data—would likely push USD/JPY lower. Conversely, a cautious BoJ tone emphasizing growth risks, firmer U.S. data, or risk-on equities would bias USD/JPY higher, with renewed official warnings possible if moves turn disorderly.

Technical picture. Price action is sideways after retreating from early-September dollar highs, with spot oscillating in 146.50–149.00. We see 149.00 as near-term resistance and 146.50 as initial support; a sustained break on either side would more cleanly define the next directional leg. Speculative positioning remains elevated, leaving room for two-way squeezes around BoJ and Fed headlines.

Gold — Current Conditions & Week-Ahead Outlook (≈300 words)

Spot gold sits just shy of record territory after printing a new all-time high near $3,674/oz earlier in the week. It ended Friday around $3,649/oz, up roughly 1.7% on the week, supported by softer U.S. data and firm expectations of imminent Fed rate cuts. Entering the new week, the tone remains constructive: easing bets, a benign dollar backdrop, and steady investor inflows continue to underwrite dips. Our base case is sideways-to-higher, with an upside bias if the Fed validates a gradual, meeting-by-meeting cutting path. A hotter data pulse or a more hawkish-than-expected press conference would likely trigger a tactical shake-out rather than a trend change—unless it meaningfully revives the debate over higher real rates.

Flows and positioning are aligned with the advance. Exchange-traded funds recorded a third consecutive month of net inflows in August—led by North America and Europe—while COMEX speculative net longs have increased in recent weeks. Street targets have also crept higher; for example, one major house now projects $3,800/oz by end-2025.

This is a data-and-Fed week: U.S. Retail Sales (Tue), Housing Starts/Permits (Wed), and the FOMC decision and dot plot (Wed). The base case is a 25 bp cut accompanied by “meeting-by-meeting” guidance. The interplay of growth and price signals across these releases will steer the USD, nominal yields, and—most importantly—real rates, which remain the dominant driver of bullion.

Scenario-wise, a Retail Sales undershoot, softer housing, and a dovish Fed message should nudge real yields lower and the dollar softer, keeping gold on a bullish footing and inviting another test of $3,670–$3,700. A mixed data set with a one-and-then-assess tone favors consolidation between $3,570 and $3,670. Conversely, a hot control-group print or a hawkish tilt would likely firm front-end yields and the USD, risking a pullback toward $3,520–$3,550.

Technically, $3,670–$3,700 is the immediate resistance zone (record area). Initial supports sit near $3,550 (recent breakout shelf), $3,520 (≈20-DMA), and then $3,500; a decisive break below would put $3,450 in focus. Overall, the balance of risks tilts modestly higher so long as real rates and the dollar remain contained and inflows persist.

WTI — Current Market Conditions & Week-Ahead Outlook

Front-month WTI settled near $62.70/bbl on Friday (Sep 12) after a choppy week shaped by oversupply headlines and soft U.S. demand signals. Brent closed around $67/bbl. The pressure reflects U.S. inventory builds and a widening global-surplus narrative. Looking ahead to the FOMC and key U.S. data, our base case is a range trade at $61–$64. A dovish cut paired with softer data could lift prices toward $64–$65, while a hawkish surprise or firmer prints would expose $60–$61 supports.

Fundamentals snapshot

• U.S. stocks: The latest EIA weekly showed +3.9 mb crude and +1.5 mb gasoline builds (week ending Sep 5). Refinery utilization eased to ~94.9%, reinforcing a shoulder-season demand lull.
• Agency views (last week):
  • EIA (STEO, Sep): Projects large inventory builds (>2 mb/d) from 3Q25–1Q26, with Brent ~$59 in 4Q25 and trending toward ~$50 in early 2026 as OPEC+ supply rises.
  • IEA (OMR, Sep): Expects supply growth (+2.7 mb/d in 2025) to outpace demand (~+0.74 mb/d), warning of ~2.5 mb/d stock builds in H2-2025 if trends persist.
  • OPEC (MOMR, Sep): Keeps a more constructive demand view (+1.3 mb/d in 2025; +1.4 mb/d in 2026) but notes the ORB fell $1.24 m/m to $69.73 in August.

In short, EIA/IEA emphasize a looming surplus and inventory accumulation; OPEC is demand-supportive but acknowledges softer pricing. Rallies are therefore fragile unless supply discipline improves or demand surprises to the upside.

Week-ahead scenarios

• Bullish: U.S. data undershoot, and the Fed delivers a 25 bp cut with dovish-leaning dots → softer USD/real yields → WTI attempts $64–$65.
• Base case (range): Mixed data and a “one-and-watch” Fed message as refinery runs step down seasonally → $61–$64 consolidation.
• Bearish (tactical): Hot data or a hawkish Fed lifts the dollar/front-end yields while builds persist → retest of $60–$61.

Technical (front-month WTI)

• Trend: Short-term downtrend from late-August highs, with momentum stabilizing near support.
• Resistance: $63.80 (recent intraday high), then $65.70 (early-Sep swing).
• Support: $61.55 (last week’s low), then $60.00 (psychological).
• Bias: Range-to-slightly-lower unless price reclaims $63.80; a daily close > $65.70 would neutralize the downtrend and reopen $67–$68.

Geopolitics

Sanction headlines and episodic disruptions can spark short-term squeezes, but thus far they have not offset the prevailing surplus story.

Crypto Market — Current Conditions & Week-Ahead Outlook

With ETF inflows firm, Bitcoin dominance elevated, and a likely Fed cut in view, crypto begins the week on solid footing. Our base case for BTC is sideways-to-higher, with $118K–$120K as the pivotal topside zone and $109K–$110K as the first line of defense. A retest of $107K would likely require a hawkish macro surprise.

Flows & market structure. U.S. spot BTC ETFs recorded roughly $642M of net inflows on Sept 12, the fifth straight positive day, lifting cumulative net inflows to about $56.8B and AUM to roughly $153B (≈6.6% of BTC market cap). The total crypto market cap stands near $4.17T, with Bitcoin’s share of around 55%.

Macro calendar. It’s a central-bank-heavy stretch: U.S. Retail Sales (Tue) and Housing Starts plus the FOMC (Wed). The base case is a 25 bp cut with “meeting-by-meeting” guidance. The reaction of the USD and real rates remains the primary driver for digital assets—softer data and dovish messaging tend to support crypto; a hawkish surprise is a headwind.

Sentiment & breadth. Rising ETF demand provides a durable bid underneath BTC. Risk sentiment also benefits from renewed public-market interest in crypto-related firms (e.g., IPO chatter). BTC leadership remains firm (dominance >55%), though pockets of alt strength are emerging; if dominance slips, watch for a broader “alt-season” rotation.

BTC Technical Estimates (spot)

• Trend: The uptrend from early September trough remains intact; dips continue to be bought alongside ETF inflows.
• Resistance: $118K–$120K (key psychological band). A daily close above $120K opens $123K–$125K.
• Support: $113K–$112K (nearby shelf). A break below puts $109K–$110K in focus; loss of $109K would raise risk of a test toward $107K.