What to watch next week: The central bank’s three doors this week: dovish, cautious, and hawkish. Who will set the prices?
2025-09-12 20:22:02
As this week draws to a close, market attention quickly turns to next week's "Central Bank Super Week." Next Wednesday (September 17th) will see the Bank of Canada (BoC) and the Federal Reserve take the stage, followed by the Norges Bank and the Bank of England (BoE) on Thursday, and the Bank of Japan (BoJ) on Friday.
From a fundamental perspective, external uncertainties and domestic sentiment remain. On the macroeconomic front, weak employment has become a key concern: the latest report shows the unemployment rate rising to 4.3%, as expected, and the non-farm payroll report is only 22k, well below the 75k forecast. The benchmark wage figure has also been revised downward from 2025 to 911k. Meanwhile, initial jobless claims in the first week of September rose again, exceeding expectations, suggesting that the weakness in August may have continued into September. On the inflation front, August's CPI/PPI signals showed mixed trends, but this was largely ignored by the market due to the weakening employment situation.
Regarding policy expectations, federal funds futures indicate a 90.4% probability of a 25 basis point rate cut on Wednesday (September 17th), with the remaining probability betting on a 50 basis point cut. Looking further ahead, the market still favors one rate cut each in October and December. If the 25 basis point rate cut is implemented this time, the focus will quickly shift to economic forecasts, the dot plot, and the language of the press conference. If the Fed adheres to the market's path of "further rate cuts in October and December," the US dollar may weaken modestly. If the guidance is more dovish (implying more than two rate cuts), the US dollar may experience a "gap-down" decline. Conversely, if the Fed emphasizes "observation and data dependence" and remains reserved about further rate cuts, the US dollar will receive "asymmetric" support. Analysts believe that the US dollar's directional flexibility next week will primarily come from the Fed itself: confirmation of the path = a weaker US dollar; convergence of the path = a stronger US dollar.
On the pound, fiscal constraints and rising debt interest rates are suppressing growth expectations, while the debate over fiscal rebalancing is exacerbating policy uncertainty. High-frequency data showed a significant decline in house prices in August, near-stagnation in GDP in July, and contraction in industrial activity, all of which are bearish. However, short-term catalysts will depend on Tuesday's July employment report and Wednesday's August CPI report: any signs of tightening employment or sticky inflation could provide a buffer for the pound. Regarding policy, the market generally expects the Bank of England (BOE) to remain on hold on Thursday, with interest rates at 4%. The "vote spread" signal is important to monitor: at the last meeting, 5 votes supported a rate cut, while 4 votes remained unchanged. If a majority of members still favor further easing this time, the pound could come under pressure. Conversely, if a more resolute stance of "maintaining a wait-and-see attitude until the end of the year" is signaled, the pound could find some support. Analysis: Data showing tightening employment and resilient inflation would be more likely to provide marginal support for the pound. A more explicit BoE stance of "no change for the year" would also help stabilize the currency.
For the Euro, political and geopolitical factors remain the dominant short-term drivers. France is experiencing political volatility: former Prime Minister "Bayrou" resigned, and the president appointed Sebastien Lecornou as his successor. Meanwhile, geopolitical tensions in the east have escalated, with Poland shooting down a Russian drone and invoking NATO's Article 4. While this is expected to cool down later, the incident itself has weakened risk appetite for the Euro. On the policy front, the European Central Bank (ECB) recently maintained its stance and updated its outlook: headline inflation averages of 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027; and growth of 1.2% in 2025 (revised up from 0.9% in June), 1.0% in 2026, and 1.3% in 2027. The overall outlook suggests a relatively comfortable outlook for current interest rates, leading the market to speculate on no further changes this year and a continued hold until the end of 2026. Data is relatively sparse, with only the final French and German HICs for August, Eurozone industrial output for July, and German ZEW for September being the focus. In a high-frequency vacuum, political and geopolitical variables have a greater marginal impact on the euro; once the disturbance escalates, the euro is vulnerable to pressure.
Politically, Japanese Prime Minister Shigeru Ishiba resigned, prompting a leadership election within the ruling party. Political uncertainty is negative for the yen and may also increase the communication costs of the Bank of Japan (BoJ) in its normalization efforts. On the policy front, the BoJ's interest rate decision on Friday is expected to remain unchanged, with the Japanese Yen's OIS index indicating a 94.7% probability of no change, but expectations of a December rate hike are building. On the macro side, attention will be focused on Friday's August CPI release: a resurgence in inflation would provide support for the "one rate hike this year" narrative. The analytical perspective is clear: with a near-consensus on holding steady, any more hawkish outlook could trigger a yen rally; conversely, any dovish communication would put pressure on the yen.
Regarding the Canadian dollar, macroeconomic indicators indicate a significant weakening of employment in August: the unemployment rate rose to 7.1%, and the employment change was -65.5k, leading the market to increase bets on easing by the Bank of Canada (BOC). Canada's August CPI will be released on Tuesday, the eve of the interest rate meeting. If inflation picks up, it will weaken the pricing of a rate cut and be bullish for the Canadian dollar in the short term; if inflation falls, it will reinforce expectations of easing. On the policy side, the Canadian dollar's OIS data indicates an 82.2% probability of a 25 basis point rate cut on Wednesday, and the market remains inclined to favor another rate cut in December. Fundamentally, the beta of oil price fluctuations on the Canadian dollar cannot be ignored: if oil prices weaken again, the Canadian dollar's performance may be affected. If the BoC cuts rates and sends a dovish tone, the risk of a weaker Canadian dollar increases; however, leading inflation readings and the path of oil prices may still influence the timing of the move.
US dollar: Dot matrix and forward guidance determine the range of strength and weakness
From a fundamental perspective, external uncertainties and domestic sentiment remain. On the macroeconomic front, weak employment has become a key concern: the latest report shows the unemployment rate rising to 4.3%, as expected, and the non-farm payroll report is only 22k, well below the 75k forecast. The benchmark wage figure has also been revised downward from 2025 to 911k. Meanwhile, initial jobless claims in the first week of September rose again, exceeding expectations, suggesting that the weakness in August may have continued into September. On the inflation front, August's CPI/PPI signals showed mixed trends, but this was largely ignored by the market due to the weakening employment situation.
Regarding policy expectations, federal funds futures indicate a 90.4% probability of a 25 basis point rate cut on Wednesday (September 17th), with the remaining probability betting on a 50 basis point cut. Looking further ahead, the market still favors one rate cut each in October and December. If the 25 basis point rate cut is implemented this time, the focus will quickly shift to economic forecasts, the dot plot, and the language of the press conference. If the Fed adheres to the market's path of "further rate cuts in October and December," the US dollar may weaken modestly. If the guidance is more dovish (implying more than two rate cuts), the US dollar may experience a "gap-down" decline. Conversely, if the Fed emphasizes "observation and data dependence" and remains reserved about further rate cuts, the US dollar will receive "asymmetric" support. Analysts believe that the US dollar's directional flexibility next week will primarily come from the Fed itself: confirmation of the path = a weaker US dollar; convergence of the path = a stronger US dollar.
Pound Sterling and Euro: The Trade-Off Between Inaction and Political Premium
On the pound, fiscal constraints and rising debt interest rates are suppressing growth expectations, while the debate over fiscal rebalancing is exacerbating policy uncertainty. High-frequency data showed a significant decline in house prices in August, near-stagnation in GDP in July, and contraction in industrial activity, all of which are bearish. However, short-term catalysts will depend on Tuesday's July employment report and Wednesday's August CPI report: any signs of tightening employment or sticky inflation could provide a buffer for the pound. Regarding policy, the market generally expects the Bank of England (BOE) to remain on hold on Thursday, with interest rates at 4%. The "vote spread" signal is important to monitor: at the last meeting, 5 votes supported a rate cut, while 4 votes remained unchanged. If a majority of members still favor further easing this time, the pound could come under pressure. Conversely, if a more resolute stance of "maintaining a wait-and-see attitude until the end of the year" is signaled, the pound could find some support. Analysis: Data showing tightening employment and resilient inflation would be more likely to provide marginal support for the pound. A more explicit BoE stance of "no change for the year" would also help stabilize the currency.
For the Euro, political and geopolitical factors remain the dominant short-term drivers. France is experiencing political volatility: former Prime Minister "Bayrou" resigned, and the president appointed Sebastien Lecornou as his successor. Meanwhile, geopolitical tensions in the east have escalated, with Poland shooting down a Russian drone and invoking NATO's Article 4. While this is expected to cool down later, the incident itself has weakened risk appetite for the Euro. On the policy front, the European Central Bank (ECB) recently maintained its stance and updated its outlook: headline inflation averages of 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027; and growth of 1.2% in 2025 (revised up from 0.9% in June), 1.0% in 2026, and 1.3% in 2027. The overall outlook suggests a relatively comfortable outlook for current interest rates, leading the market to speculate on no further changes this year and a continued hold until the end of 2026. Data is relatively sparse, with only the final French and German HICs for August, Eurozone industrial output for July, and German ZEW for September being the focus. In a high-frequency vacuum, political and geopolitical variables have a greater marginal impact on the euro; once the disturbance escalates, the euro is vulnerable to pressure.
Japanese Yen: A consensus on holding steady is emerging, with the tone of communication determining the direction of fluctuations.
Politically, Japanese Prime Minister Shigeru Ishiba resigned, prompting a leadership election within the ruling party. Political uncertainty is negative for the yen and may also increase the communication costs of the Bank of Japan (BoJ) in its normalization efforts. On the policy front, the BoJ's interest rate decision on Friday is expected to remain unchanged, with the Japanese Yen's OIS index indicating a 94.7% probability of no change, but expectations of a December rate hike are building. On the macro side, attention will be focused on Friday's August CPI release: a resurgence in inflation would provide support for the "one rate hike this year" narrative. The analytical perspective is clear: with a near-consensus on holding steady, any more hawkish outlook could trigger a yen rally; conversely, any dovish communication would put pressure on the yen.
Canadian dollar: Comparing paths and sentiment amidst light data
Regarding the Canadian dollar, macroeconomic indicators indicate a significant weakening of employment in August: the unemployment rate rose to 7.1%, and the employment change was -65.5k, leading the market to increase bets on easing by the Bank of Canada (BOC). Canada's August CPI will be released on Tuesday, the eve of the interest rate meeting. If inflation picks up, it will weaken the pricing of a rate cut and be bullish for the Canadian dollar in the short term; if inflation falls, it will reinforce expectations of easing. On the policy side, the Canadian dollar's OIS data indicates an 82.2% probability of a 25 basis point rate cut on Wednesday, and the market remains inclined to favor another rate cut in December. Fundamentally, the beta of oil price fluctuations on the Canadian dollar cannot be ignored: if oil prices weaken again, the Canadian dollar's performance may be affected. If the BoC cuts rates and sends a dovish tone, the risk of a weaker Canadian dollar increases; however, leading inflation readings and the path of oil prices may still influence the timing of the move.
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