Central Banks’ Showcase: The Market Bets on Rates

EURUSD

Key zone: 1.1680 - 1.1750

Buy: 1.1800 (on a strong positive foundation) ; target 1.1950-1.2050; StopLoss 1.1730

Sell: 1.1650 (after a retest of 1.1750) ; target 1.1500-1.1450; StopLoss 1.1720

All U.S. macroeconomic reports, including August NFP, point to the need for a Fed rate cut. Trump’s criticism of Powell now looks justified, even though economists still forecast inflation to rise under tariff pressure, with the peak expected by year-end. Moreover, the White House is preparing new sectoral tariffs, adding stress to the market.

On Tuesday, U.S. retail sales data for August will be released — a key argument for the Fed. However, any decision will be a hard choice for Powell, and predicting an outcome favorable for equities is extremely difficult.

Only two working scenarios remain:

• A 0.25% cut, combined with guidance for another adjustment this year, would be seen as the Fed’s unwillingness to support the economy and would trigger a decline in equity indices.
• A 0.50% cut would require weak labor market confirmation and a statement on recession risk; in this case, equities would rally.

Given the historic highs of stock indices, Powell is unlikely to prioritize equities, especially amid the risk of a second inflation wave. Still, a 0.50% cut cannot be ruled out.

The broader backdrop is tightening with additional events:

• Bank of Canada: high probability of a 0.25% cut. Tuesday’s inflation report may serve as a decisive factor.
• Bank of England: rates will likely remain unchanged, though labor market data (Tuesday) and inflation (Wednesday) could shift the stance. Trump’s visit to the U.K. adds political risk for Starmer’s government amid cabinet reshuffles.
• Bank of Japan: no changes expected due to political instability. Once resolved, a return to rate hikes is possible. In any case, the BOJ press conference will be critical.

Last week’s ECB meeting carried a notably positive tone. Lagarde pointed to internal growth and bond market stability, with concerns limited to a strong euro and cheap Chinese imports. Political instability in France and Macron’s government maneuvering, however, led Fitch to downgrade the country’s rating. The eurozone debt market is awaiting a reaction.

Before opening new short positions in EUR/USD, investors will want clarity on the pace and timing of Fed cuts.

Profits to y’all!