September Market Update

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September Market Update

Insights from the dealing desk

4 minute read


August Overview


  • BoE raised rates 0.25% to 5.25%
  • Consistent USD strength
  • With GBP/EUR on par for the month

Recently, we've seen the tide turn on the underlying trend of dollar weakness that perpetuated the start of the year after we started to see the dollar sell at the end of 2022. The main reason for the dollar's weakness was the perception that the US Federal Reserve would slow or stop interest rate rises ahead of the other major central banks – the European Central Bank (ECB) and the Bank of England (BoE). 

The difference today is that while the Fed may still reach the end of its hiking cycle before the BoE and the ECB, their monetary policy cycles are coming to an end, too.

And the economic data coming out of the US is comparably positive, with moderating inflation and a cooling labour market, boosting the perception of a 'soft landing' – the ultimate goal of interest rate hikes, where economic growth slows down, but a recession is avoided. On this side of the pond, the outlook isn't so optimistic. 

In August, we saw consistent USD strength. GBP/USD dropped from over 1.2820 to 1.2550, recovering at the end of the month to 1.27, as month-end profit-taking took place. Similarly, EUR/USD fell from 1.1064 to 1.0770, with a brief recovery at month-end to the 1.0900-1.0950 range.

GBP/EUR stayed flat, with no real drive either way for the UK and EU during the quiet holiday period, trading in a 2% range of 1.1758 to 1.1537 - even the UK raising interest rates again at the start of August to 5.25% didn't give sterling much momentum in August.

September Outlook


  • ECB is on the fence
  • US Fed to hold
  • BoE could raise rates twice more this year 

As we kick off September, the Bank of England seems to be on course to raise rates twice more this year. Conversely, the US Fed look set to hold rates at current levels, with markets pricing it in with a 93% probability of a pause and a 60% chance of no more hikes this year. However, the ECB seems to be split on what comes next with its monetary policy tightening.

Inflation data last week confirmed that recent declines in inflation throughout the region reversed over the last month. Three of the biggest economies in the EU, Germany, France, Spain, and the region as a whole, saw headline inflation accelerate more than expected during August - although on a preliminary basis.

However, the softer and leading indicators for the EU economy, such as manufacturing and services sector PMIs and consumer confidence surveys, suggest that the economy is weakening.

This puts the ECB on the fence; on one side, policymakers don't raise interest rates further and leave inflation stagnant; on the other, they put them up too much, leading to a deep and prolonged recession. 

ECB policymakers haven't given much away either, with Vice President Luis de Guindos saying the "decision was open" for September's meeting at a panel in Santander, Spain, last week. He also spoke about how the inflation outlook hadn't changed according to the ECB's latest forecasts.

The minutes from July's meeting added to speculation, detailing that "a further rate hike in September would be necessary if there was no convincing evidence that the effect of the cumulative tightening was strong enough to bring underlying inflation down".

This kind of uncertainty is where we generally see the highest volatility in financial markets, meaning there could be increased risk to foreign exchange gains and losses going into the 14th of September meeting.

Similarly, even with the UK and US rate decision forecasts, there will be extra focus on all economic data released this month, highlighting the importance of planning an FX strategy.

All figures sourced from Bloomberg unless otherwise stated.

This commentary does not constitute, nor should be construed as financial advice.



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