IC Markets Europe Fundamental Forecast | 16 September 2025

IC Markets Europe Fundamental Forecast | 16 September 2025

What happened in the Asia session?

The Asia trading session on September 16, 2025, was dominated by optimism surrounding expected Federal Reserve rate cuts, which drove major stock indices to historic highs in Japan and South Korea. However, China’s disappointing economic data served as a reminder of underlying regional challenges. The combination of Fed dovishness, improving US-China trade dynamics, and strong corporate earnings supported risk assets, while safe-haven flows into gold reflected ongoing global uncertainties.

What does it mean for the Europe & US sessions?
Today’s trading environment is dominated by Fed expectations, with traders positioned for the first rate cut of 2025. While markets appear confident in a 25bp reduction, the real focus will be on Fed guidance for future policy paths. Economic data, particularly retail sales, will provide insights into consumer resilience amid this monetary policy transition. The combination of dovish Fed expectations, record-low yields, and geopolitical uncertainties creates a complex backdrop requiring careful risk management across all asset classes.

The Dollar Index (DXY)

Key news events today

Core Retail Sales m/m (12:30 pm GMT)

Retail Sales m/m (12:30 pm GMT)

What can we expect from DXY today?

The US Dollar faced its most significant challenge in months on September 16, 2025, as a confluence of factors – including dovish Fed expectations, intensifying political pressure from President Trump, and technical selling momentum – pushed the currency to multi-month lows. With the Fed’s rate cut decision virtually certain, focus has shifted to the magnitude of the reduction and forward guidance about future policy moves. The dollar’s near-term trajectory will likely depend on the Fed’s ability to balance economic data with political pressures while maintaining its independence, alongside upcoming economic indicators that could either support or challenge the current dovish narrative.

Central Bank Notes:

• The Federal Open Market Committee (FOMC) voted, by majority, to lower the federal funds rate target range by 25 basis points to 4.00%–4.25% at its September 16–17, 2025, meeting, marking the first policy rate adjustment since December 2024 after five consecutive holds.
• The Committee maintained its long-term objective of achieving maximum employment and 2% inflation, acknowledging recent labor market softening and continued tariff-driven price pressures.
• Policymakers expressed elevated concern about downside risks to growth, citing a stalling labor market, modest job creation, and an unemployment rate drifting up toward 4.4%. At the same time, inflation remains above target, with CPI at 3.2% and core inflation at 3.1% as of August 2025; higher energy and food prices, largely attributable to tariffs, continue to weigh on headline measures.
• Although economic activity expanded at a moderate pace in the third quarter, the growth outlook has weakened. Q3 GDP growth is estimated near 1.0% (annualized), with full-year 2025 GDP growth guidance revised to 1.2%, reflecting slowing household consumption and tighter financial conditions.
• In the updated Summary of Economic Projections, the unemployment rate is projected to average 4.5% for the year, with headline PCE inflation revised up slightly to 3.1% for 2025. The Committee anticipates core PCE inflation to remain stubborn, requiring sustained vigilance and a flexible approach to risk management.
• The Committee reiterated its data-dependent approach and openness to further adjustments should employment or inflation deviate meaningfully from current forecasts. Several members dissented, either advocating a larger 50 basis point cut or preferring no adjustment at this meeting, revealing heightened divergence within the Committee.
• Balance sheet reduction continues at a measured pace. The monthly Treasury redemption cap remains at $5B and the agency MBS cap at $35B, as the Board aims to support orderly market conditions in the face of evolving global and domestic uncertainty
• The next meeting is scheduled for 28 to 29 October 2025.

Next 24 Hours Bias
Medium Bearish

Gold (XAU)

Key news events today

Core Retail Sales m/m (12:30 pm GMT)

Retail Sales m/m (12:30 pm GMT)

What can we expect from Gold today?

Gold’s record-breaking performance on September 16, 2025, reflects a confluence of supportive factors, including near-certain Fed rate cut expectations, US dollar weakness, robust ETF inflows, and ongoing geopolitical tensions. While central bank purchases have moderated due to high prices, they remain positive, and technical indicators suggest further upside potential toward the $3,700-$3,800 range. The metal’s 43% year-to-date gain underscores its continued appeal as both an inflation hedge and safe-haven asset in an environment of monetary policy uncertainty and global instability.

Next 24 Hours Bias   
Strong Bullish

The Euro (EUR)

Key news events today

German ZEW Economic Sentiment (9:00 am GMT)

What can we expect from EUR today?

The Euro demonstrated resilience on September 16, 2025, reaching $1.1778 despite significant regional challenges. The ECB’s hawkish pivot, signaling an end to rate cuts, provided fundamental support for the currency. However, persistent concerns remain around France’s fiscal crisis, German economic weakness, and escalating trade tensions with both the US and China.

Central Bank Notes:

• The Governing Council kept the three key ECB interest rates unchanged at its September 11, 2025, meeting. The main refinancing rate remains at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. These levels have been maintained after the cuts earlier in 2025, reflecting the Council’s confidence that the current stance is consistent with the price stability mandate.
• Evidence that inflation is running close to the ECB’s medium-term target of 2% supported the decision to hold rates steady. Domestic price pressures are easing as wage growth continues to moderate, and financing conditions remain accommodative. Policymakers reaffirmed a data-dependent, meeting-by-meeting approach to further policy moves, with no pre-commitment to a predetermined path amid ongoing global and domestic risks.
• Eurosystem staff projections foresee headline inflation averaging 2.0% for 2025, 1.8% for 2026, and 2.0% in 2027. The 2025 and 2026 forecasts reflect a downward revision, primarily on lower energy costs and exchange rate effects, even as food inflation remains persistent. Core inflation (excluding energy and food) is expected at 2.0% for both 2026 and 2027, with only minor changes since prior rounds.
• Real GDP growth in the euro area is projected at 1.1% for 2025, 1.1% for 2026, and 1.4% for 2027. A robust first quarter—partly due to firms accelerating exports ahead of anticipated tariff hikes—cushioned a weaker outlook for the remainder of 2025. While business investment continues to face uncertainty from ongoing global trade disputes, especially with the US, government investment and infrastructure spending are expected to provide some support to the outlook..
• Household spending is backed by rising real incomes and continued strength in the labor market. Despite some fading tailwind from previous rate cuts, financing conditions remain broadly favorable and are expected to underpin the resilience of private consumption and investment against outside shocks. Moderating wage growth and profit margin adjustments are helping to absorb residual cost pressures.
• Household spending is backed by rising real incomes and continued strength in the labor market. Despite some fading tailwind from previous rate cuts, financing conditions remain broadly favorable and are expected to underpin the resilience of private consumption and investment against outside shocks. Moderating wage growth and profit margin adjustments are helping to absorb residual cost pressures.
• All future interest rate decisions will continue to be guided by the integrated assessment of economic and financial data, the inflation outlook, and underlying inflation dynamics, and the effectiveness of monetary policy transmission—without any pre-commitment to a specific future rate path.
• The ECB’s Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining predictably, as reinvestment of maturities has ceased. Balance-sheet normalization continues in line with the ECB’s previously communicated schedule.
• The next meeting is on 29 to 30 October 2025

Next 24 Hours Bias
Weak Bullish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss Franc enters mid-September 2025 from a position of considerable strength, supported by safe-haven flows, contained inflation, and Switzerland’s economic stability. While the upcoming SNB meeting on September 25 is expected to maintain current policy settings, the central bank’s new transparency measures signal an important communication evolution. US trade tensions remain a significant economic challenge, though Switzerland’s diversified economy and the franc’s reserve currency status continue to provide resilience in an uncertain global environment.

Central Bank Notes:

• The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.
• Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.
• Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026, and 0.7% for 2027.
• The global economy continued to grow at a moderate pace in the first quarter of 2025, but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
• Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.
• Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.
• The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
• The next meeting is on 25 September 2025.

Next 24 Hours Bias
Medium Bullish

The Pound (GBP)

Key news events today

Average Earnings Index 3m/y (6:00 am GMT)

Claimant Count Change (6:00 am GMT)

What can we expect from GBP today?

Sterling’s strength on Tuesday reflects broad US Dollar weakness ahead of the Fed’s anticipated rate cut, despite concerning domestic economic fundamentals. While the Pound benefits from relative outperformance against other major currencies, underlying challenges include stagnant growth, elevated inflation, and a cautious Bank of England. The combination of a dovish Fed and resilient UK inflation expectations continues to support Sterling in the near term, though technical resistance levels and domestic economic headwinds present potential challenges ahead.

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) voted on 7 August 2025 by a majority (exact split likely 5–3–1 or similar, based on expectations) to cut the Bank Rate by 25 basis points to 4.00%. Multiple members supported the move, citing fragile economic growth and signs of disinflation, while others preferred a larger reduction, and at least one member voted to hold the rate steady due to concerns about persistent inflation.
• The Committee unanimously decided to continue reducing the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next 12 months, targeting a balance of £558 billion by October 2025. As of 7 August, the gilt stock stands at £590 billion.
• Disinflation has been substantial since 2023 owing to policy tightening and the fading of external shocks. However, an unexpected uptick in headline CPI inflation—to 3.6% in June—reflects pass-through from regulated prices and earlier energy price rises, as well as signs of sticky core inflation.
• Headline CPI inflation is now 3.6%, above the Bank’s 2% target, reflecting regulated and energy price effects. The Committee expects inflation to remain around this level through Q3 before resuming its downward trend into 2026.
• UK GDP growth remains weak. Business and consumer surveys point to lackluster activity, and the labor market continues to loosen, with increasing evidence of slack. Wage growth has softened but remains above pre-pandemic norms.
• Pay growth and employment indicators have moderated further, and the Committee expects a significant slowing in pay settlements over the rest of 2025.
• Global uncertainty remains elevated, especially with rising energy prices and supply disruptions linked to conflict in the Middle East and renewed trade tensions. These factors prompt the MPC to remain vigilant in monitoring cost and wage shocks.
• The risks to inflation are considered two-sided. With the outlook for growth subdued and inflation persistence less clear, the Committee argues that a gradual and careful approach to further easing is warranted, with future policy decisions highly data-dependent.
• The Committee’s bias is still towards maintaining monetary policy at a restrictive stance until there is firmer evidence that inflation will return sustainably to the 2% target over the medium term. Further adjustments to policy will be decided on a meeting-by-meeting basis, with scrutiny of developments in demand, costs, and inflation expectations.
• The next meeting is on 18 September 2025.
  
  Next 24 Hours Bias
  Medium Bullish

The Canadian Dollar (CAD)

Key news events today

CPI m/m (12:30 pm GMT)

Median CPI y/y (12:30 pm GMT)

Trimmed CPI y/y (12:30 pm GMT)

Common CPI y/y (12:30 pm GMT)

What can we expect from CAD today?

Tuesday’s developments reflect a Canadian dollar caught between supportive factors like higher oil prices and manufacturing resilience, versus significant headwinds from labor market deterioration and expected monetary easing. The currency’s performance in the coming days will largely depend on the Bank of Canada’s communication strategy and whether policymakers signal a prolonged easing cycle. With both the BoC and Fed expected to cut rates on Wednesday, the relative magnitude and forward guidance from each central bank will be crucial for the USD/CAD direction.

Central Bank Notes:

• The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% as of July 30, marking the third consecutive meeting with rates on hold.
• The Council cited ongoing U.S. tariff adjustments and unresolved trade negotiations as key drivers of elevated economic uncertainty. The persistence of tariffs at levels well above those of early 2025 continues to present downside risks to growth and keeps inflation expectations elevated, supporting a cautious approach to monetary easing.
• The lack of a clear U.S. policy path, plus frequent threats of additional tariffs, led the Bank to highlight risks to Canadian exports and broader demand, amplifying uncertainty about future growth.
• Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.
• Canadian GDP growth is expected to be near 0% in Q2 2025, closely aligned with the more optimistic scenario outlined earlier in the year. Weakness in manufacturing activity—driven by both U.S. trade disruptions and sector-specific challenges like wildfires—contributed to softer output. A partial recovery is anticipated in Q3 due to rebuilding efforts and stronger retail sales in June.
• Consumer spending slowed, especially as households front-loaded durable goods purchases ahead of tariffs. Housing activity remains subdued, with resales and construction still soft despite some government tax relief measures.
• Headline CPI inflation continued to ease, holding close to 1.7% in June, aided by declines in energy prices following the removal of the fuel charge. However, the Bank’s measures of core inflation and underlying price pressures moved up further due to higher import costs from tariffs and lingering supply disruptions.
• The Governing Council reiterated that it will carefully weigh ongoing upward inflation pressure from tariffs and cost shocks against the gradual downward pull from economic weakness. While additional rate cuts remain possible, timing and scale will depend on trade policy developments and inflation’s path.
• The next meeting is on 17 September 2025.

Next 24 Hours Bias
Medium Bearish

Oil

Key news events today

API Crude Oil Stock (8:30 pm GMT)

What can we expect from Oil today?

Oil markets on September 16, 2025, are caught between conflicting forces. While immediate supply disruption risks from Ukrainian attacks on Russian infrastructure and anticipated Federal Reserve rate cuts are providing near-term price support, fundamental market conditions point to significant oversupply ahead. The EIA’s projection of massive inventory builds and OPEC+’s continued production increases suggest substantial downward price pressure through 2026, with Brent potentially falling to $50 per barrel despite current geopolitical tensions. The market is essentially pricing in short-term disruption risks while bracing for longer-term oversupply challenges.

Next 24 Hours Bias
Weak Bearish