Markets now expect policymakers to cut borrowing costs at least two more times this year, as the updated 2025 forecast projects a decline to 3.60%. Fed Chair Jerome Powell reiterated the central bank’s commitment to lowering inflation to 2.0% but stressed that decisions on monetary policy will continue to be data-driven.
Meanwhile, GDP forecasts were revised higher: the U.S. economy is expected to grow 1.6% this year versus 1.4% previously. For 2026, the forecast was raised from 1.6% to 1.8%, and for 2027 from 1.8% to 1.9%. In Europe, investors turned their attention to fresh inflation data: the core annual consumer price index held at 2.3% as expected, with the monthly figure at 0.3%. The broader CPI slowed from 2.1% to 2.0% y/y and from 0.2% to 0.1% m/m, which may push the European Central Bank (ECB) to deliver another rate cut this year, potentially completing its dovish cycle and providing additional support for growth in the region. Today, speeches from ECB officials will be in focus as markets look for new guidance on growth and inflation.
GBP/USD
The pound is weakening in the GBP/USD pair during the morning session, extending its downtrend and testing the 1.3600 level to the downside. Market activity remains elevated ahead of today’s Bank of England meeting at 13:00 (GMT+2). Forecasts suggest policymakers will leave monetary policy unchanged, keeping the rate at 4.00%. However, some members of the Monetary Policy Committee may vote for a cut. Analysts cite inflation risks as the main reason for caution, but officials have previously said preemptive action may be required given the UK economy’s limited resilience compared to the U.S. The Fed’s rate cut yesterday is seen as the start of a new dovish cycle. Tomorrow at 08:00 (GMT+2), UK retail sales data will be released, expected to show a slowdown from 1.1% to 0.6% y/y, and from 0.6% to 0.4% m/m, while the ex-fuel reading could decline from 1.3% to 0.8% y/y and from 0.5% to 0.3% m/m.
AUD/USD
The Australian dollar is falling against the USD in the Asian session, extending yesterday’s bearish momentum. The pair is testing the 0.6630 level to the downside as traders digest August labor market data. Employment declined by 5.4K after a 26.5K gain the previous month, compared with expectations of +22K. Full-time jobs fell by 40.9K after rising 63.6K in July, while part-time employment increased by 35.5K after a 37.1K decline. The unemployment rate held steady at 4.2% as expected, while labor force participation eased from 67.0% to 66.8%. Meanwhile, the Fed’s two-day meeting concluded with a 25 bps cut to 4.25%, as expected. Chair Powell noted that inflation remains somewhat elevated. Updated forecasts project U.S. GDP growth of 1.6% in 2025 (up from 1.4%), 1.8% in 2026, and 1.9% in 2027 (previously 1.6% and 1.8%).
USD/JPY
The U.S. dollar is trading higher in the USD/JPY pair during Asian hours, extending gains after cautiously optimistic Fed comments on economic growth. The Fed now expects GDP to grow 1.6% in 2025 (up from 1.4%), 1.8% in 2026, and 1.9% in 2027. Policymakers also cut rates by 25 bps to 4.25%, the first cut since December, an outcome already priced in according to CME FedWatch Tool, which showed over 90% probability. Markets now see a faster pace of cuts ahead, with year-end 2025 projections at 3.60% (down from 3.90%), 2026 at 3.60% (vs 3.50%), and 2027 at 3.40% (vs 3.10%). Powell acknowledged inflation remains elevated but manageable, while the impact of President Donald Trump’s tariffs remains uncertain but less severe than initially feared. Attention now shifts to tomorrow’s Bank of Japan meeting, with rates expected to remain unchanged at 0.50%. The BoJ is also likely to hold steady until a new Prime Minister is elected on October 4, following PM Shigeru Ishiba’s resignation. At 01:30 (GMT+2) tomorrow, Japan’s August CPI will be released, expected to slow from 3.1% to 2.7% y/y, adding pressure on the BoJ.
XAU/USD
XAU/USD is consolidating around 3655.00, retreating from record highs as the Fed’s rate decision boosted the dollar midweek. The Fed cut rates by 25 bps to 4.25%, citing weak labor data and a cooling economy. Markets expect at least two more cuts this year, with 2025 forecasts pointing to 3.60%. Powell reiterated the 2.0% inflation target, emphasizing a data-dependent approach. GDP forecasts, however, were revised higher: growth of 1.6% in 2025, 1.8% in 2026, and 1.9% in 2027. Traders now await today’s Bank of England meeting (13:00 GMT+2) and tomorrow’s Bank of Japan decision. Both central banks are expected to hold rates steady, but official commentary could heavily influence demand for gold as a safe-haven asset.