Markets Reassess Fed Path After Their 'Hawkish Cut'.

A significant repricing of interest rate expectations is underway in financial markets following last week's pivotal central bank meetings. While the US Federal Reserve delivered its first rate cut of the cycle, the move was accompanied by projections and commentary that were more hawkish than anticipated, signalling a slow and shallow easing path. This has provided renewed strength for the US Dollar and has set a cautious tone for the week ahead as markets digest the new policy landscape.

The Pound Sterling is trading on a firmer footing relative to its peers after the Bank of England opted to hold interest rates steady last week. Citing persistent inflation, the BoE has distinguished itself from the Fed and ECB, providing a supportive dynamic for the currency. With a light UK domestic calendar this week, the Pound's performance will be influenced by the market's ongoing reassessment of the global interest rate outlook.

The US Dollar begins the week with strong upward momentum after the Federal Reserve's "hawkish cut". The key question for investors now is whether the economic data will support the Fed's patient stance. The main data point this week will be Friday's release of the Core PCE Price Index, the central bank's preferred inflation measure. A high reading would validate the Fed’s cautious message and could provide further support for the Dollar.

The Euro is facing renewed headwinds from the resurgent US Dollar and the divergence in central bank policy. The European Central Bank is perceived to be on a more consistent easing path than the Federal Reserve, which is weighing on the single currency. This week's German IFO Business Climate survey will be an important sentiment check for the Eurozone's largest economy.

Events to Watch This Week:

⦁ Wednesday, September 24: German IFO Business Climate

⦁ Thursday, September 25: US Final GDP (for Q2)

⦁ Friday, September 26: US Core PCE Price Index

Following last week's intense central bank activity, this week will be about digestion and data validation. The market will be looking to see if the incoming US inflation data justifies the Federal Reserve's cautious approach to further rate cuts. Friday's Core PCE report is the key release and is likely to be the main driver of volatility.

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