Global markets are bracing for a pivotal week as the US Federal Reserve prepares for its September policy meeting, widely expected to deliver its first interest rate cut of the year. Investors are watching closely whether policymakers will prioritize signs of a slowing labor market or persistently high inflation, which has remained above the Fed’s 2% target for five years and is showing an upward trend.
The dollar remains steady despite pressures, supported partly by economic headwinds elsewhere, including stagnation in Europe and deepening stagflation in the UK. Meanwhile, gold has surged nearly 40% against the US dollar this year, cementing its role as a key safe-haven asset.
“Front and center this week will be the September Federal Reserve meeting, which is universally expected to cut rates for the first time in 2025,” said Enrique Díaz-Álvarez, Chief Economist at Ebury. “We do not expect a jumbo 50 basis point cut, as that would carry a whiff of panic and perhaps result in a financial market sell-off.”
Key US data releases this week include August retail sales on Tuesday and weekly jobless claims on Thursday, which will provide fresh signals on consumer demand and labor market health. Analysts caution that any signs of stagflation—sluggish growth coupled with sticky inflation could complicate the Fed’s path forward.
In Europe, the European Central Bank’s September meeting was largely a non-event, with no further cuts anticipated. Concerns are now centered on France’s fiscal deficit, recently highlighted by a Fitch downgrade, which underscores fiscal strains across the eurozone.
Across the UK, markets await labor market data and inflation figures, expected to confirm ongoing stagflationary pressures. While gilt yields have stabilized after recent volatility, sentiment remains fragile.
As traders await clarity from policymakers, attention will remain fixed on the Fed’s balancing act between supporting growth and reining in inflation, with ripple effects expected across global currencies and commodities.
