Week ahead – Fedspeak and US data to set the tone in markets

• Dovish Fedspeak and soft PCE data may dent the dollar’s recovery.

• US-China negotiations continue, as yuan’s appreciation lingers.

• Eurozone PMIs could cement the ECB pause; SNB might threaten with negative rates.

• Yen is bid after hawkish BoJ, but LDP contest might clip its wings.

• Aussie on the backfoot; next week’s data may offer a reprieve.

Post-FOMC period

An eventful week is coming to an end, with markets digesting the numerous central bank meetings, predominantly the Fed’s decision. The much-discussed 25bps rate cut was announced, with the US dollar being close to recording another negative week despite the post-FOMC meeting rally. Fed Chair Powell tried to dampen rate cut expectations by referring to Wednesday’s cut as a risk management move, but the dot plot told a different story.

Several investment houses are forecasting consecutive rate cuts in the remaining two Fed meetings of 2025. A plethora of Fed speakers will be on wires next week, with the focus being on Fed members Waller and Bowman and their likely remarks about failing to support the 50bps cut sought by newcomer Miran. Notably, US President Trump is also expected to chip in, most likely expressing his fury at Powell.

While dovish Fedspeak will most likely dominate the week, markets will also be monitoring incoming data and trade negotiations. The preliminary PMI manufacturing and services surveys on Tuesday could set the tone for the week, but barring a surprise at Thursday’s final Q2 GDP print, investors will be mostly interested in the durable goods report – often seen as a leading growth indicator – and Friday’s PCE report. Should the Fed’s favourite inflation metric accelerate, questions about the realistic chances of a back-to-back rate cut may arise.

The dollar is craving another small boost. Euro/dollar is hovering around 1.1770 at the time of writing, bouncing lower after posting a new four-year high at 1.1918, and dollar/yen continues to range-trade. That said, dovish Fedspeak and potentially soft data releases next week might hinder dollar’s ability to record a meaningful rally. On the flip side, stronger PCE data could offer some relief to the ailing dollar, damaging risk appetite.

Will China react to yuan’s appreciation as its economy remains fragile?

Meanwhile, the latest round of US-China negotiations resulted in the Tiktok agreement, meeting Trump’s demands. A Trump-Xi call later today is set to confirm the progress made, but could also address the Ukraine-Russia conflict. China stands by Russia at this stage, but Xi is mostly focused on addressing domestic challenges. Another set of measures to boost services consumption was announced this week.

Notably, despite pressure from the Fed rate cut and the appreciating yuan, the PBoC kept its seven-day repo rate unchanged at 1.40%. Consequently, there is a strong probability of a similar decision on Monday about the one- and five-year LPRs. That said, while the housing sector is probably in need of an LPR cut, the PBoC might want to evaluate the economic boost of the upcoming Golden Week before adjusting rates.

Will Eurozone PMIs justify the current ECB strategy?

The upbeat tone at the recent ECB meeting cemented expectations of a policy pause, with Tuesday’s OECD interim projections most likely confirming the anticipated growth acceleration. However, like for the Fed, data matter. On Tuesday, the pivotal preliminary PMI services and manufacturing surveys will be published, with investors paying extra attention to the German and French prints. In the case of the former, economists are expecting modest improvement in both indicators, despite the manufacturing one remaining in contraction. Coupled with a potentially stronger IFO survey print, one could argue that Germany might be gradually turning the corner. That same cannot be said for France though, where PMIs could weaken further due to the political turmoil.

What does all this mean for the euro? Strong data might benefit the euro, but the current rally in euro/dollar is mostly US-driven. Market concerns about Trump’s governing style, the various judicial cases, the attempted power grab at the Fed, and the lingering trend for de-dollarization boost the euro. A continuation of this trend should keep the euro supported, but a correction could be on the cards, with 1.1703 being the primary support level.

Pound’s early August rally against the Euro is gradually evaporating

Following the uneventful BoE meeting, which kept the door open to further accommodation, the focus shifts to economic data, with investors also preparing for the next Labour government crisis. Tuesday’s preliminary PMIs will offer the next piece in the growth jigsaw, though inflation remains the MPC’s main headache.

Meanwhile, there is a plethora of BoE speakers this week, potentially aiming to stir market expectations towards a November rate cut, since Thursday’s meeting involved only a statement. Any indication that the MPC is closer to a rate cut than currently perceived may put another dent in the pound’s recent rally against the dollar.

Yen stuck between BoJ and political developments

Similarly, the yen continues to dance to the tune of politics. The October 4 LDP leadership contest is hotting up with five candidates already in the starting line. They will gradually present their strategies, with investors focusing on their fiscal policy stance and their outlook on the BoJ, with most candidates unlikely to openly support Governor Ueda’s effort to normalize policy.  

The BoJ kept rates unchanged earlier today, and is preparing for the final two meetings of 2025. Ueda et al remain confident about the inflation outlook, partly due to the final US-Japan trade agreement, with next Friday’s Tokyo CPI report in focus. The yen has reacted positively to two hawkish dissidents at today’s meeting, but further hawkish signals are necessary to support a dollar/yen bearish breakout from the prevailing range.

SNB to refrain from pushing rates to negative territory this time around

Unlike other central banks, the SNB has already pushed its policy rate to 0%. With consumer price inflation hovering just above zero, producer price inflation edging further into negative territory, the economy evidently slowing down, and the Swiss franc recording an impressive 13% rally against the dollar, the SNB is understandably pondering negative rates for the first time since mid-2022.

With the franc’s strength being mostly a product of the dollar’s broader weakness and of the search for a safe haven, a rate cut would serve as a signal of the SNB’s determination to achieve its price target. Therefore, while no rate cut is expected on Thursday, SNB President Schlegel is set to keep the door wide open for another rate cut, indirectly threatening a replay of the 2014-2022 period. Only time will tell if markets see this as an empty threat and continue to push dollar/franc lower.

Aussie might catch a bid

Finally, the antipodeans are losing ground this week against the dollar. With China still struggling to meaningfully restart its domestic economy, the Australian economy remains fragile. Growth in the second quarter of 2025 was encouraging, the labour market is not showing serious cracks and monthly inflation indicators are holding up following the mixed Q2 prints. Should next Tuesday’s preliminary PMIs and Wednesday’s CPI report post upside surprises, then chances of a September 30 rate cut might be dented, boosting the aussie.