Next week, several central banks will hold meetings and release important economic data. Key central banks like the FOMC, BoE, BoJ, and BoC will announce their monetary policy decisions. The US Retail Sales report and various economic data from the UK will also be closely watched. Additionally, China will release its August activity data, which will offer insights into retail sales, industrial production, and investments, with some areas expected to show slight recovery.

Monetary Policy Predictions

The UK employment report is likely to show the unemployment rate steady at 4.7%. In the US, retail sales for August are expected to rise by 0.3%, while Canadian inflation data may affect expectations for further rate cuts by the BoC. The FOMC is anticipated to cut rates by 25 basis points due to a weakening labor market. Similarly, the BoC might cut rates in response to recent economic data suggesting slower growth. In the UK, inflation data is expected to show a small increase in core CPI, while overall services are likely to stay stable. New Zealand’s Q2 GDP could show a contraction. The BoE is predicted to keep interest rates at 4%, focusing on persistent inflation. Norges Bank is expected to cut rates by 25 basis points. The BoJ is likely to maintain current interest rates, and Japanese CPI data, released on the same day, is expected to show a slight decline in headline inflation. UK retail sales are forecasted to see a small rise in August. Next week will be heavily influenced by central bank decisions, increasing event risk across major currency pairs and indices. The main events include policy announcements from the FOMC, BoE, and BoJ. Traders in derivatives should focus on volatility and potential changes in forward guidance. The week will begin with Chinese activity data for August, which will help set the tone for global growth sentiment. Recent data has shown a continued decline in the property sector, with new home prices falling for twelve straight months as of August 2025. Any disappointing industrial production or retail sales figures could pressure commodity-linked currencies and affect risk assets.

Key Events and Market Reactions

The most significant event is the FOMC meeting on Wednesday, where a 25-basis-point rate cut is expected. Our focus is not just on the cut, but also on the updated economic projections and the dot plot, as the market anticipates about 70 basis points of total cuts by year-end. Volatility in the options market, indicated by the VIX index, which has been hovering around a low 14, is likely to increase before the announcement. We expect the updated dot plot to suggest a more aggressive easing path through the rest of 2025 and into 2026. This could weaken the dollar and boost equity indices. We are considering short-dated call options on the S&P 500 to prepare for a dovish surprise from the Fed’s forward guidance. In the UK, timing is crucial, with August inflation data due on Wednesday, followed by the BoE decision on Thursday. Since headline CPI is expected to rise to 3.9%, strong inflation data could delay market expectations for the next rate cut, which is currently not anticipated until early 2026. This could provide short-term support for the pound against the dollar and the euro. The BoE is widely expected to maintain its rate at 4%, so our attention will be on the voting split and any changes in guidance. The last meeting in August 2025 had a surprising 5-4 vote to cut rates, indicating a divided committee. A similar split or a more hawkish tone could lead to rising yields on UK gilts as traders adjust their expectations for future easing. The Bank of Japan’s announcement on Friday presents a significant risk. While no policy change is expected, conflicting reports about the timing of the next rate hike have created uncertainty, with USD/JPY recently trading above the key 150 level. This political uncertainty, following the prime minister’s resignation, adds complexity for the BoJ. To prepare for surprises, low-cost options strategies could be useful. We see value in buying out-of-the-money USD/JPY puts to protect against any hawkish comments that could sharply strengthen the yen. The main strategy is to position for a possible reassessment of the BoJ’s policy normalization path. Other data points, like US Retail Sales on Tuesday, will be important for assessing consumer health before the Fed’s decision. The Bank of Canada is also expected to cut rates on Wednesday, a move largely anticipated by the market. This aligns with the broader global trend of central bank easing, supporting our core strategies focused on major policy meetings. Create your live VT Markets account and start trading now.

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