IC Markets Europe Fundamental Forecast | 18 September 2025

IC Markets Europe Fundamental Forecast | 18 September 2025

What happened in the Asia session?

Today’s Asia session was defined by the fallout from the Fed’s quarter-point rate cut and Australia’s worse-than-expected jobs data, which pressured the AUD and weighed on local equities. Regional equities were mixed, with Japan’s Nikkei continuing to set the pace, while safe-haven flows supported the yen and gold. Markets are now awaiting outcomes from the BOJ meeting and Japanese inflation data later in the week.

What does it mean for the Europe & US sessions?
Today’s trading environment is characterized by central bank caution amid persistent inflation concerns. The BoE is expected to pause rate cuts despite economic weakness, while the Fed’s measured approach has strengthened the dollar and pressured commodities. Employment data from Australia and the US both show labor market softening, though inflation remains the primary concern for policymakers globally. Traders should monitor any dovish surprises from the BoE and manufacturing data for signs of economic momentum shifts.

The Dollar Index (DXY)

Key news events today

Unemployment Claims (12:30 pm GMT)

Philly Fed Manufacturing Index (12:30 pm GMT)

What can we expect from DXY today?

Thursday’s dollar performance reflected the ongoing market adjustment to the Fed’s dovish pivot, with the currency showing modest strength despite underlying concerns about labor market deterioration. The dollar’s recovery from Wednesday’s lows suggests markets are taking a more balanced view of the Fed’s cautious approach to further easing, though significant uncertainty remains about the pace of future rate cuts.

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
Weak Bearish

Gold (XAU)

Key news events today

Unemployment Claims (12:30 pm GMT)

Philly Fed Manufacturing Index (12:30 pm GMT)

What can we expect from Gold today?

Gold’s performance on September 18, 2025, reflects a classic “buy the rumor, sell the news” reaction to the Fed’s rate cut decision. While prices pulled back from record highs, the fundamental backdrop remains supportive with continued central bank buying, geopolitical tensions, dollar weakness, and expectations for further monetary policy easing. The precious metal has gained an impressive 39% year-to-date, and despite near-term volatility, analysts remain constructive on gold’s longer-term trajectory toward the $4,000 level and beyond.

Next 24 Hours Bias   
Strong Bullish

The Euro (EUR)

Key news events today

No major news event

What can we expect from EUR today?

The euro showed resilience despite minor Thursday weakness, maintaining near four-year highs against the dollar. Key supportive factors include eurozone inflation stabilizing at the ECB’s 2% target, improved economic growth projections, and market expectations that the central bank’s rate-cutting cycle has concluded. However, ongoing trade policy uncertainty and mixed economic indicators suggest cautious optimism, with the ECB maintaining its data-dependent approach while emphasizing that the disinflationary process is complete.

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
Medium Bullish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss Franc continues to attract safe-haven flows as global uncertainty lingers, with its value versus the USD and other major currencies close to recent highs. The Swiss National Bank is expected to hold rates steady, and no major new data or surprises are anticipated today. Global strategists view CHF as a preferred safe-haven, particularly in comparison to the Japanese yen, given Switzerland’s fiscal stability and prudent central bank policy.

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

Monetary Policy Summary(11:00 am GMT)

MPC Official Bank Rate Votes (11:00 am GMT)

Official Bank Rate (11:00 am GMT)

What can we expect from GBP today?

Sterling’s recent gains reflect cautious optimism pending BoE policy outcomes, but upside is seen as limited unless economic data surprises or the BoE signals a policy shift. Overall, market focus today is on the tone of the BoE statement and any hints about future rate cuts. Labor market data shows stable unemployment at 4.7%, wage growth of 4.8% (excluding bonuses), and a slight fall in payrolls by 8,000—broadly in line with forecasts and suggesting a gradually slowing jobs market.

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) voted on 18 September 2025 by a majority (expected split likely 7–2 or 6–3) to hold the Bank Rate steady at 4.00%, following the August rate cut. Most members cited persistent inflation and mixed indicators on growth and employment, while a minority favored further easing due to the cooling labor market and subdued GDP growth.
• The Committee decided to decrease the pace of quantitative tightening, planning to reduce the stock of UK government bond purchases by £67.5 billion over the next 12 months instead of the prior £100 billion pace, with the gilt balance now standing near £558 billion. This reflects increased volatility in bond markets and a shift to a more gradual approach.
• Headline inflation rose unexpectedly to 3.8% in July and is projected at 4% for September, above the Bank’s 2% target. Price pressures are driven by regulated energy costs and ongoing food price increases. While previous disinflation has been substantial, core inflation remains elevated and sticky.
• The MPC expects headline inflation to remain above target through Q4, with a resumption of the downward trend projected for early 2026 as energy and regulated price pressures abate. The Committee remains watchful for signs of persistent inflation despite previous policy tightening.
• UK GDP growth is stagnant, with business and consumer activity subdued. Recent labor market data show rising unemployment rates (now at 4.7%) and stabilizing wage growth (holding near 5%), indicating slack but continued wage price pressure. The Committee remains cautious amid lackluster demand and soft survey sentiment.
• Pay growth and employment indicators have moderated further, alongside confirmation from business surveys that pay settlements are slowing. The Committee expects wage growth to decelerate significantly through Q4 and the rest of 2025.
• Global uncertainty persists due to volatile energy prices, supply chain disruptions linked to Middle East conflicts, and renewed trade tensions. The MPC remains vigilant in tracking transmission of external cost/wage shocks to UK inflation.
• Risks to inflation are considered two-sided. While subdued domestic growth and softening labor activity suggest scope for easing, persistent inflation requires caution. The MPC anticipates a slow, gradual reduction path in rates, continuing its data-dependent approach with careful adjustment as warranted by economic developments.
• The Committee’s bias remains toward maintaining a restrictive monetary policy stance until firmer evidence emerges that inflation will return sustainably to the 2% target. All future decisions will remain highly data dependent, with a strong emphasis on evolving demand, inflation expectations, costs, and labor market conditions.
• The next meeting is on 6 November 2025.
  
  Next 24 Hours Bias
  Medium Bullish

The Canadian Dollar (CAD)

Key news events today

No major news event

What can we expect from CAD today?

The Canadian dollar remains under slight pressure following the rate cut, with the central bank signaling flexibility for further action if economic weakness persists. Traders are awaiting the  US Federal Reserve signals and watching oil prices and trade policy for further direction.  The USD/CAD exchange rate is currently around 1.3760, with CAD to USD at about 0.726. Exchange rates have fluctuated in a relatively tight range over the past week, and CAD is up about 0.7% weekly after the rate cut.

Central Bank Notes:

• The Bank of Canada reduced its target for the overnight rate to 2.50% at its September 17 meeting, with the Bank Rate at 2.75% and the deposit rate at 2.25%. This marks the first rate cut since early 2025, as the Bank responded to a string of softer inflation prints and persistent economic headwinds.
• The Council cited continued U.S. tariff volatility and slow progress on trade negotiations as major contributors to ongoing uncertainty. While headline tariffs have not escalated further, the unpredictability of U.S. policy remains a significant risk for Canadian exports and business confidence.
• Uncertainty about U.S. trade policy and recurring tariff threats continued to weigh on growth prospects. The Bank flagged downside risks to the export sector, with survey data indicating ongoing hesitancy among manufacturers and exporters.
• After modest growth in Q1, Canada’s economy slipped into contraction, with GDP shrinking by 0.8% in Q2 and forecast to decrease again by 0.8% in Q3. Economic weakness has been most pronounced in manufacturing and goods-producing sectors affected by trade frictions and softer U.S. demand.
• Early estimates show that growth stabilized in September but remained well below the Bank’s 2% forecast for Q4. Manufacturing output has improved slightly—supported by a modest rebound in petroleum and mining activity—while consumer spending and retail sales were largely flat.
• Consumer spending remained subdued as households continued to limit discretionary purchases amid uncertainty and a slower job market. Housing activity stayed weak, despite earlier government efforts to boost affordability and modest gains in some real estate segments.
• Headline CPI inflation edged up to 1.9% in August, undershooting economist expectations but still showing emerging pressures from shelter and imported goods costs. Core inflation metrics were mixed, though price growth remains just below the Bank’s 2% target.
• The Governing Council reaffirmed its cautious approach, emphasizing that while further rate cuts are possible, the pace will hinge on the path of U.S. tariffs, domestic inflation dynamics, and signs of a sustainable recovery. The Bank remains vigilant against the risk of inflation falling below target in the face of economic slack.
• The next meeting is on 29 October 2025.

Next 24 Hours Bias
Weak Bearish

Oil

Key news events today

No major news event

What can we expect from Oil today?

Oil markets on September 18, 2025, reflect a complex interplay of bearish supply-demand fundamentals and ongoing geopolitical risks. While the Federal Reserve’s rate cut provides potential longer-term demand support, immediate concerns about U.S. economic weakness, rising distillate inventories, and OPEC+ production increases are keeping prices under pressure. The market continues to trade within its established $5 range, with Brent around $68 and WTI near $64, as traders await clearer signals about global economic recovery and supply disruption risks from the ongoing Russia-Ukraine conflict.

Next 24 Hours Bias
Medium Bearish