The outpost of the Federal Reserve’s decision-making in September – US CPI data hit

The market is looking forward to the upcoming release of key CPI data this week, which will be the last important economic puzzle the Federal Reserve has acquired before its interest rate meeting from September 17 to 18. Given that Fed officials have entered a traditional policy silence period, the August CPI report will undoubtedly become an important yardstick for traders to assess the future direction of monetary policy.

European Central Bank cuts interest rates to settle

The market’s attention is also focused on the upcoming monetary policy meeting of the European Central Bank this Thursday, and the bank is expected to announce a 25 basis point rate cut. However, the market focus is more on the ECB’s forward-looking guidance on monetary policy in the coming months. Analyst Adams pointed out that the pace of the ECB’s interest rate cut may be faster than market expectations, which is prompting the market to re-evaluate the extent and speed of interest rate cuts, becoming a key factor in the continued pressure on the euro exchange rate.

The current market generally expects Europe to cut interest rates by about 60 basis points this year, while the United States is as high as 110 basis points. As European economic data weakening intensifies, market expectations for the European Central Bank to take larger rate cuts (including a one-time rate cut of 50 basis points) have heated up, further exacerbating the pressure on the euro to depreciate against the US dollar.

Suspense of the Federal Reserve’s interest rate cut: 25BPor50BP?

U.S. non-farm data in August were mixed, and although the unemployment rate dropped slightly to 4.2%, showing a certain resilience in the employment market, the employed populationGrowth is still lower than expected, and previous data has been significantly revised downward. Against this background, the rate cut (25 basis points or 50 basis points) at the Federal Reserve’s September interest rate meeting has become a hot topic in the market. It is worth noting that since March this year, the US CPI has continued to fall and is steadily approaching the 2% inflation target set by the Federal Reserve.

Feder Chairman Powell’s statement shows that although inflation is still one of the factors to consider, the focus of policy has shifted more to the employment market conditions. This week’s CPI data, as the last key report before the Federal Reserve’s decision, will directly affect the market’s adjustments to its expectations for short-term interest rate cuts.

The current market generally expects that the Fed’s probability of cutting interest rates by 25 basis points in September is 69%, while the probability of 50 basis points is 31%, indicating that there is still uncertainty in the range of interest rate cuts. However, given the general expectation of a 50 basis point rate cut in November, unless the CPI data far exceeds expectations, a 25 basis point rate cut in September seems to be a foregone conclusion.

Bank of England waits for data guidance

At the same time, the Bank of England will hold a meeting on September 19, and the market expects it to keep interest rates unchanged, which is contrary to the global interest rate cut. This is mainly due to the strong rebound of the UK economy in the first half of 2024 and the still high wage growth and service industry inflation.

However, a series of upcoming economic data, including Tuesday’s July employment report and Wednesday’s GDP data, will provide important reference for the Bank of England’s final decision. If the data shows that the labor market is stable and economic growth meets expectations, the possibility of the Bank of England staying still will increase further. On the contrary, if the data is not performing well, the market may reassess the possibility of the Bank of England’s interest rate cuts, and the pound exchange rate may be under pressure.

The above are the economic data and central bank decisions this week, which will provide traders with important market signals. Traders need to pay close attention to these events to grasp market dynamics and formulate corresponding trading strategies.