US

USD bounced from fresh cyclical lows, Treasury yields found footing after yesterday’s swings, and US equity futures are up. Near-term, USD can retrace more of this week’s losses before settling into its August range as yield spreads show little scope to move further against USD. Beyond the near-term, the USD downtrend is intact.

Fed delivered a neutral cut. As was widely expected, the FOMC cut the target range for the Fed funds rate 25bps to 4.00-4.25% after keeping them on hold since January. The biggest dovish take from the FOMC is that “The Committee…judges that downside risks to employment have risen”. That suggests more easing is in the pipeline if the US labor market shows ongoing weakness.

Indeed, the updated FOMC 2025 median fed funds rate projection implies two more 25bps rate reduction by year-end to a target range of 3.50-3.75% (3.625%) which is largely in line with futures pricing. Unsurprisingly, there was one dissent in favor of a 50bps cut (Fed Governor Stephen Miran) and no dissent for keeping rates unchanged.

Everything else points to a shallow, gradual easing cycle. First, the FOMC median funds rate projection still implies 1 cut in both 2026 and 2027 and the longer run rate is unchanged at 3.0%. Second, real GDP growth was revised higher across the forecast horizon, the unemployment rate was adjusted a tick lower for 2026 and 2027, while inflation was tweaked two ticks up in 2026. Third, Fed Chair Jay Powell sounded cautious on the scope for further easing describing the latest cut as a “risk-management cut.”

Today, weekly jobless claims will be noteworthy because the figure will be for the BLS survey week containing the 12th of the month. Worrisomely, new applications for weekly jobless claims unexpectedly jumped to 263k for the week ended September 6 vs. 236k the previous week, the highest since October 2021. Consensus expect claims to drop to 240k for the week ended September 13.

UK

GBP/USD clawed back overnight losses. We expect muted action in GBP and gilts today. The Bank of England (BOE) is widely expected to keep the policy rate on hold at 4.00% and reiterate its guidance for “a gradual and careful approach” to further rate cuts (12:00pm London, 7:00am New York). We see a vote split of 7-2 in favor of steady rates, with the dissenters supporting a 25bps cut (Taylor and Dhingra). No Monetary Policy Report is tied to this meeting. The next one is due in November.

The BOE will also announce the pace at which it will shrink its bond holdings over the next 12 months. Market participants estimate the new gilt runoff pace to slow from currently £100bn (between October 2024-September 2025) to £60bn-£75bn (between October 2025-September 2026).

A much smaller volume of maturing UK bonds is in the pipeline between October 2025 to September 2026 (£49bn vs £87bn the last 12 months). As such, maintaining the current £100bn annual pace of gilt runoff risk pushing long-term gilt yields higher, since a smaller volume of maturing bonds mean the BOE must sell a record £51bn of gilts.

NORWAY

NOK outperformed briefly. Norges Bank delivered a hawkish cut. The bank reduced the policy rate 25bps to 4.00%. Ahead of the decision, the swaps market priced-in 60% odds of a cut. The Norges bank said it considered keeping the policy rate unchanged at this meeting but concluded that a rate cut is now appropriate.

The Norges Bank pointed out that the policy rate will be reduced further but not as much and as quickly as envisaged in June. The bank’s new forecast shows a policy rate of 3.50% by Q2 2027 vs. 3.25% previously. According to the Norges Bank “a restrictive monetary policy is still needed” because inflation is expected to remain elevated for a little longer and there is a little less spare capacity in the economy.

The swaps market implies a shallower easing cycle than the Norges Bank pencils-in which bodes well for NOK. The swaps curve price-in the policy rate to bottom at around 3.75% in the next two years.

CANADA

The Bank of Canada’s more dovish policy stance relative to the Norges Bank supports the downtrend in CAD/NOK.

Yesterday, the Bank of Canada (BOC) cut the policy rate 25bps to 2.50% (widely expected) after being on hold since April. The BOC noted “there was clear consensus to lower our policy rate” because Canada’s labor market has softened further, upward pressures on underlying inflation have diminished, and there is less upside risk to future inflation.

That suggests more easing is in the pipeline if Canada’s labor market shows ongoing weakness. The swaps market is pricing 80% odds of an additional 25bps cut by year-end to 2.25% and some odds of another 25bps reduction to a low of 2.00% over the next 12 months.

AUSTRALIA

AUD/USD edged lower but is holding above key support at 0.6600. Australia’s August labor force report was unexpectedly weak. The economy lost -5.4k jobs (consensus: +21.0k) vs 26.5k in July, driven by a -40.9k decline in full-time employment (vs. +63.6k in July). Part-time employment increased 35.5k, reversing July’s loss. The unemployment rate was unchanged at 4.2% for a second consecutive month in August but the drop in the participation rate and decline in hours worked signal slack is building beneath the surface.

The RBA has flagged that the pace of decline in the cash rate will largely be driven by labor market conditions. Today’s soft jobs report weakens the case for a gradual RBA easing path and is a headwind for AUD. For now, RBA cash rate futures continue to imply 50bps of easing over the next twelve months and the policy rate to bottom near 3.10%.

NEW ZEALAND

NZD underperformed across the board and New Zealand bonds rallied. New Zealand real GDP dropped sharply in Q2. The economy contracted -0.9% q/q vs 0.9% in Q1. The decline was bigger than the -0.3% predicted by the market and the RBNZ. Manufacturing and construction were the largest contributor to the overall decrease in GDP. On the expenditure side, exports and business investment were the main downward drivers.

The swaps markets dialed-up RBNZ rate cut bets. The next RBNZ meeting is on October 8, and odds of a 50bps cut to 2.50% rose from zero to roughly 30%. The RBNZ’s policy path projects the Official Cash Rate (OCR) to bottom at 2.50% by year-end. However, the steeper pullback in economic activity opens the door for additional easing towards the lower end of the RBNZ neutral range estimate between 1.60% and 4.20%. We expect NZD/USD to hold above its 200-day moving average (0.5838) because global growth remains resilient despite persistent uncertainty.

SOUTH AFRICA

South African Reserve Bank (SARB) is expected to keep rates on hold at 7.00% (2:00pm London). However, there is a small probability (35%) of a 25bps cut to 6.75%. In our view, SARB can afford to pause its easing cycle as core CPI inflation is settling around the bank’s 3% comfort zone.