In the European session, the main highlight was the UK CPI report. The data came mostly in line with expectations, so it didn't change anything in terms of market pricing. Looking ahead, we have just the final Eurozone CPI reading which is not going to be a market-moving release unless we get notable revisions.
In the American session, the focus will turn to the BoC and FOMC policy decisions. The BoC is expected to cut interest rates by 25 bps and bring the policy rate to 2.50%. Expectations for a rate cut at this meeting got sealed by the last Canadian jobs report which showed job losses and the unemployment rate jumping to 7.1% from 6.9% prior. The market is pricing another 25 bps cut in December.
The Fed is expected to cut interest rates by 25 bps and bring the FFR to 4.00-4.25%. There will likely be two or three governors voting for a 50 bps cut (Miran, Waller and Bowman). At this meeting the Fed will release the SEP (Summary of Economic Projections) and the focus will be on the dot plot.
In June, the Fed projected two rate cuts in 2025 and one in 2026, therefore a total of 75 bps of easing by the end of 2026. The market is currently pricing 148 bps of easing by the end of 2026, with three cuts in 2025 and three more in 2026. This is where we could get a "hawkish" surprise as the Fed might signal just one or two cuts in 2026. For 2025, the Fed is likely to match the market pricing, but if it keeps 50 bps, it would be another hawkish surprise.
The focus will then turn to Fed Chair Powell's Press Conference where he's expected to put more emphasis on the weakening labour market and less on inflation, which is what he already communicated at the Jackson Hole Symposium. Maybe he might even pledge stronger support in terms of rate cuts in case the labour market data showed further deterioration.
