IC – Europe Fundamental Forecast | 17 September 2026
What happened in the Asia session?
The hawkish Fed strengthened the USD, pushed USD/JPY higher, and pressured Asian government bonds. At the same time, New Zealand’s stronger-than-expected GDP and Singapore’s exceptional export growth provided positive regional economic signals. China remains important through yuan policy and equity performance, while oil is pulling back as Saudi supply concerns ease. Gold is showing resilience because geopolitical risk is helping offset the negative impact of the stronger dollar and higher yields.
What does it mean for the Europe & US sessions?
The main theme today is central-bank divergence and inflation risk. The Fed’s hawkish rate hike has strengthened the dollar and lifted short-term yields, while traders now turn to the BoE for clues about how it intends to respond to UK inflation and the energy shock.
The Dollar Index (DXY)
Key news events today
Philly Fed Manufacturing Index (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The main driver today is the hawkish Fed repricing after yesterday’s rate hike. The dollar has moved to a seven-week high, while higher Treasury yields are adding support. The main short-term catalysts are U.S. jobless claims and the Philly Fed Manufacturing Index at 12:30 PM, followed by developments from the Bank of England today and Bank of Japan tomorrow.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) raised the federal funds target range by 25 basis points to 3.75%–4.00% at its September 15–16, 2026 meeting. The decision was approved unanimously by a 12–0 vote, marking a shift from the July meeting, when rates were held at 3.50%–3.75%. The Fed said the move was intended to support its dual mandate and promote a more timely return of inflation toward its 2% objective.
- The labor market remains relatively resilient. The September FOMC statement said job gains have kept pace with workforce growth and that the unemployment rate has changed little. The Fed continues to monitor employment conditions closely alongside inflation when determining the appropriate path for monetary policy.
- Inflation remains above the Federal Reserve’s 2% target and continues to be a key policy concern. The September decision explicitly noted that inflation remains elevated. The latest projections put median headline PCE inflation at 3.7% for 2026, before falling to 2.3% in 2027, 2.1% in 2028, and 2.0% in 2029. Core PCE inflation is projected at 3.4% in 2026, declining to 2.5% in 2027 and 2.2% in 2028.
- Economic activity continues to expand at a solid pace. The Fed highlighted resilient domestic spending, strong productivity growth and robust capital investment, although uncertainty remains elevated partly because of geopolitical developments. The September projections raised the median 2026 GDP-growth forecast to 2.3%, compared with 2.2% in the June projections.
- The September projections show a higher expected policy-rate path than in June. The median projection for the federal funds rate is now 4.1% at the end of 2026, compared with 3.8% in the June projections. The median is projected at 4.1% in 2027, 3.9% in 2028, and 3.6% in 2029. This indicates that policymakers’ projected rate path remains relatively restrictive while inflation is expected to move gradually toward the target.
- Chair Kevin Warsh continues to emphasize the importance of returning inflation to 2%. Ahead of the September meeting, Warsh indicated that the Fed would have further work to do if policymakers could not gain sufficient confidence that inflation was moving toward the 2% objective. The September decision subsequently delivered a 25-basis-point hike, while the Committee continued to emphasize its assessment of incoming economic data and risks.
- The September economic projections show a more balanced growth outlook but continued inflation risks. The median unemployment forecast is 4.1% for 2026 and 2027, while the Fed projects GDP growth of 2.3% in 2026 and 2.4% in 2027. At the same time, PCE inflation is expected to remain substantially above target through 2026 before moving closer to 2% over subsequent years.
- The next meeting is scheduled for 27 to 28 October 2026.
Next 24 Hours Bias
Strong Bullish
Gold (XAU)
Key news events today
Philly Fed Manufacturing Index (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Gold has surprisingly held up after the Fed’s rate hike. The main battle today is between higher U.S. rates/USD, which pressure gold, and safe-haven demand plus technical buying, which are supporting it. The U.S. jobless claims and Philly Fed figures shown on your calendar could provide the next significant catalyst.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The euro is under pressure today, mainly because of the sharp strengthening of the U.S. dollar following the Federal Reserve’s latest rate decision. The Fed raised rates by 25 bps to 3.75%–4.00% and signalled that another hike could come later this year. EUR/USD subsequently fell to around 1.1456, close to a seven-week low.
Central Bank Notes:
- The ECB enters October with its policy outlook dependent on the outcome of the 10 September meeting. The latest confirmed decision, from 23 July, kept the deposit facility at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility at 2.65%. The ECB continued to emphasise a meeting-by-meeting and data-dependent approach, with no commitment to a predetermined rate path.
- The euro-area economy remains resilient, but growth is still relatively modest. The latest ECB data show euro-area GDP at €4.1185 trillion in Q2 2026, up 1.2% quarter-on-quarter and 3.6% year-on-year in the latest reported data. However, the economic outlook remains vulnerable to elevated energy costs, geopolitical uncertainty and weaker external demand.
- Inflation remains the key issue for ECB policy. The ECB’s July assessment highlighted that energy prices remained highly volatile and significantly above pre-conflict levels, with the full inflationary impact of the energy shock still uncertain. The ECB is therefore closely monitoring direct energy effects as well as possible second-round effects through wages and broader price-setting behaviour.
- Professional forecasters continue to expect inflation to remain above target in 2026. The ECB’s Q3 Survey of Professional Forecasters projected headline HICP inflation at 2.7% for 2026, falling to 2.2% in 2027 and 2.0% in 2028. Core inflation, excluding energy, food, alcohol and tobacco, was projected at 2.4% in 2026 and 2.2% in 2027.
- Growth expectations have softened. The same ECB survey projects real GDP growth of only 0.6% in 2026, followed by 1.2% in 2027 and 1.3% in 2028. This combination of relatively weak growth and above-target inflation leaves the ECB facing a difficult policy trade-off heading into October.
- The ECB’s balance-sheet normalisation is expected to continue. The APP and PEPP portfolios continue to decline in a measured and predictable manner because the Eurosystem is no longer reinvesting principal payments from maturing securities. This gradual quantitative tightening is expected to continue unless financial-market conditions require the ECB to adjust its approach.
- The main risk for October is the combination of persistent inflation and weak growth. Higher oil and natural-gas prices could keep inflation above the ECB’s 2% target while simultaneously reducing household purchasing power and business activity. This could make the ECB more cautious about easing policy even if economic growth remains weak.
The next meeting is on 29 October 2026
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
For today’s session, CHF may remain sensitive to risk sentiment and geopolitical headlines. The biggest external driver is the stronger USD following the Fed’s hawkish decision, while any renewed risk-off move could increase demand for the Swiss franc.
Central Bank Notes:
- At its monetary policy assessment on 18 June 2026, the Swiss National Bank left the SNB policy rate unchanged at 0.00%, in line with market expectations. Policymakers maintained that the current policy setting remains appropriate given low inflation and ongoing global economic uncertainty.
- Inflation remains exceptionally subdued in Switzerland. Recent data show consumer price growth staying comfortably within the SNB’s price stability range, with headline inflation around 0.6% year-on-year in May 2026, while underlying inflation pressures remain limited despite higher global energy prices.
- The SNB continues to view medium-term inflation pressures as largely unchanged. While energy prices linked to Middle East tensions have temporarily lifted near-term inflation expectations, the stronger Swiss franc has helped offset imported inflation, supporting the central bank’s decision to maintain rates at current levels.
- External risks remain elevated. Policymakers highlighted ongoing geopolitical tensions, trade uncertainties, and slower global growth prospects, particularly in key export markets such as the Eurozone and the United States. These factors continue to warrant a cautious policy approach.
- Swiss economic activity remains resilient but modest. GDP growth is expected to remain around 1–1.5% in 2026, supported by domestic demand, although manufacturing and export-oriented sectors continue to face challenges from a strong franc and softer foreign demand.
- The SNB reiterated its readiness to act if necessary. The Governing Board emphasized that it remains willing to intervene in foreign exchange markets to counter excessive Swiss franc appreciation and stands prepared to adjust policy should inflation or economic conditions deviate materially from expectations.
The next meeting is on 24 September 2026.
Next 24 Hours Bias
Medium Bearish
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?
Inflation has accelerated to 3.1%, increasing pressure on the BoE, while the labour market is showing signs of cooling. The key catalyst is therefore today’s BoE decision and, especially, the MPC voting pattern and forward guidance. A surprise in the rate decision or a meaningful change in the vote split could produce significant GBP volatility.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) met on 29–30 July 2026, with the decision and updated Monetary Policy Report scheduled for publication on 30 July. The previous meeting in June resulted in a 7–2 vote to maintain the Bank Rate at 3.75%, with Megan Greene and Huw Pill voting for a 25-basis-point increase to 4.00%. The July meeting is particularly important because it includes a new Monetary Policy Report and updated economic projections.
- UK inflation has continued to move closer to the Bank’s 2% target. CPI inflation fell to 2.6% in June 2026, from 2.8% in May, while core CPI remained at 2.6%. Services inflation also eased from 3.7% to 3.6%, suggesting that underlying domestic price pressures are gradually moderating. Nevertheless, services inflation remains above the 2% target and continues to be an important consideration for the MPC.
- The inflation outlook remains complicated by energy-market developments. The earlier Middle East energy shock pushed inflation higher and created uncertainty around the speed at which inflation would return sustainably to target. Although energy prices have fallen from their earlier peaks, they remain elevated relative to pre-conflict levels. The MPC therefore continues to monitor the potential for energy costs to feed into wages, services prices and inflation expectations.
- The UK economy remains relatively subdued, with weak demand and signs of cooling in the labour market weighing against the upside inflation risks. The combination of slower economic activity and easing inflation creates a difficult policy balance for the MPC: keeping rates restrictive for too long could weaken growth further, while easing policy prematurely could allow persistent domestic inflation pressures to return.
- Wage growth and services inflation remain key risks for monetary policy. Although headline CPI has fallen substantially from earlier 2026 levels, the MPC is likely to remain cautious until there is greater evidence that domestic inflation pressures are sustainably declining. The moderation in services inflation to 3.6% is encouraging, but it remains above levels consistent with the Bank’s 2% inflation target.
- Quantitative tightening (QT) remains part of the Bank’s broader monetary-policy framework. The MPC continues reducing the stock of UK government bonds held for monetary-policy purposes through its balance-sheet reduction programme. At the June meeting, the stock of government bonds held for monetary-policy purposes stood at approximately £522 billion.
- The policy outlook remains highly data-dependent. With inflation moving lower but services inflation and wage pressures still elevated, the MPC faces a delicate balance between maintaining sufficiently restrictive policy and avoiding unnecessary damage to economic growth. Market participants had previously placed substantial probability on the Bank Rate remaining at 3.75% through the July meeting, although expectations for later meetings showed greater uncertainty, including the possibility of rate increases if inflation proves persistent.
- The next meeting is on 17 September 2026.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
The Canadian dollar is under pressure today as the USD strengthens following the Fed’s hawkish decision, while falling oil prices are removing some of CAD’s commodity support. However, the BoC’s willingness to consider further tightening if inflation remains elevated provides a counterweight.
Central Bank Notes:
- At its 2 September 2026 meeting, the Bank of Canada maintained the overnight rate target at 2.25%, keeping the Bank Rate at 2.50% and the deposit rate at 2.20%. This marks the seventh consecutive decision at 2.25%. While the decision was expected, the Bank’s communication became somewhat more cautious as inflation risks increased. Governor Tiff Macklem emphasized that the Bank remains prepared to adjust monetary policy if necessary to preserve price stability.
- The Canadian economy has strengthened significantly in the second quarter. GDP expanded at an annualized rate of 3.3% in Q2 2026, following very weak growth in Q1. The recovery was relatively broad-based, with consumer spending remaining resilient while housing activity, exports and business investment also improved. However, the Bank noted that some of the Q2 strength reflected temporary factors and that the sustainability of the recovery remains uncertain because of renewed trade tensions with the United States.
- The labour market has continued to improve, providing additional support for domestic demand. Employment increased by 75,000 in July, while the unemployment rate declined to 6.4%, its lowest level since July 2024. Wage growth, however, continued to moderate, with average hourly wages rising 2.8% year over year in July compared with 3.3% in June. The combination of stronger employment and moderating wages suggests that labour-market conditions are improving without generating an immediate resurgence in underlying inflation pressures.
- Inflation remains the key concern for the Bank. Headline CPI increased to 3.0% year over year in July, up from 2.8% in June. Much of the acceleration was driven by gasoline, with gasoline prices rising 25.7% year over year. Encouragingly, CPI excluding gasoline remained at 2.2%, while core inflation measures have stayed close to 2%. The Bank therefore continues to distinguish between temporary energy-driven inflation and more persistent underlying price pressures.
- Higher global oil prices have increased the upside risks to Canadian inflation. The continuing conflict in the Middle East, restrictions affecting shipments through the Strait of Hormuz, and elevated refinery margins have kept gasoline and other energy prices high. The Bank is currently looking through some of the direct impact of higher oil prices, but Governor Macklem warned that the longer energy prices remain elevated, the greater the risk that inflation becomes more persistent and spreads into other goods and services.
- US-Canada trade tensions have become a more significant downside risk to growth. New US tariffs on Canadian exports and Canada’s retaliatory measures are creating additional uncertainty for businesses. The Bank estimates that the products directly affected by the new tariffs account for around 5% of Canada’s exports to the United States, limiting the immediate economy-wide impact. Nevertheless, broader uncertainty could cause businesses to delay investment and hiring decisions, potentially slowing the recovery.
- The Bank’s policy stance remains data-dependent going into October. The BoC is balancing two opposing forces: stronger-than-expected economic activity and renewed inflation risks on one side, versus excess economic capacity and trade-related downside risks on the other. With inflation around 3% but underlying inflation closer to 2%, the Bank has so far chosen to remain on hold rather than immediately tighten policy.
- The next meeting is on 28 October 2026.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil remains highly sensitive to Middle East headlines. The immediate pressure is bearish as additional Saudi supply reduces fears of a severe shortage, but the market remains vulnerable to sharp upside moves if attacks disrupt Saudi exports, the Red Sea, or the Strait of Hormuz again. Brent is around $105–106 and WTI around $102 in early trading.
Next 24 Hours Bias
Strong Bullish
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