Week Ahead: US Core PCE, Fed Powell Speech, EZ, UK PMIs, Tokyo CPI, SNB rate decision

Weekly Recap 

After almost a year on the sidelines, the Federal Reserve cut interest rates last week by 25 basis points to 4% -4.25%. The move was widely expected by the market and almost unanimously supported among FOMC policy makers. The new Fed member, Stephen Miran, was the only board member to push for a larger 50 bps rate cut. 

The move to cut rates was driven in part by rising concerns over a soft labour market, despite inflation remaining above the Fed’s 2% target level.  Following the decision, US stocks rose to fresh record highs, and so did Gold. The USD was unchanged across the week. See graph for S&P500 below.

Separately, the BoE and the BoJ left rates unchanged and the BoC cut rates to 2.5% as expected. 

Fed Speakers (All week) 

After an eventful week last week, with the Fed restarting its rate-cutting cycle, attention will be on a plethora of Federal Reserve speakers. Attention will be specifically on Fed members Waller and Bowman, and why they voted for a 25 bps cut rather than a more dovish 50 bps cut. Federal Reserve Chair Jerome Powell is due to speak on Tuesday. The market will look for further clues from Powell regarding the outlook for rates. Although with little in the way of fresh data since the meeting last Wednesday, it may be a case of reiterating the message. Gold has broken to fresh record highs at the start of the week, and a dovish tilt to Fed messaging could help the precious metal higher. 

EZ flash PMI (Tuesday) 

Expectations are for September’s manufacturing PMI to rise to 51 up from 50.7 in August. Meanwhile, September services activity is expected to hold steady at 50.5, and the composite PMI, which is considered a good gauge for business activity, is set to rise to 51.2, up from 51, pushing it further into expansionary territory and also to a yearly high. The data will bring a more complete picture to Q3 GDP growth, which is still expected to remain weak. With the PMIs close to the 50 threshold that separates expansion from contraction, the economy is far from firing on all cylinders. From a policy perspective, the ECB left interest rates unchanged for a second straight month as inflation remains in line with the target level and as policymakers wait to see how Trump’s tariffs are impacting both growth and inflation. Stronger than forecast PMIs could lift EUR/USD. 

UK flash PMI (Tuesday) 

Expectations are for September services PMI to fall back to 53.9 from 54.2. Manufacturing activity is also expected to slip to 46.9, down from 47, whilst the composite PMI is set to slide to 53 from 53.5 in August, which was a yearly high. However, signs of caution are starting to seep in ahead of the November budget, which, unhelpfully, is late at the end of November. Recent data showed that the government borrowed more than expected in August and the first five months of the fiscal year, meaning larger tax hikes could be on the way. Fiscal concerns could weigh on sentiment, with the outlook deteriorating. From a policy perspective, inflation remains far too sticky at 3.8% in August. There is just an 8% chance of a 25 basis point reduction in November as policymakers are likely to wait for the autumn budget later in the month. Weaker-than-expected PMIs could pull GBP/USD lower. 

Australian CPI (Wednesday) 

Australian CPI is expected to rise 2.9% YoY, up from 2.8% in July, which was hotter than expected. The RBA is close to bringing inflation to target, according to RBA Assistant Governor Sarah Hunter. The board meets at the end of the month and is widely expected to leave rates unchanged at 3.6%. However, the labour market is showing signs of weakening, which could prompt a rate cut later in the year if the trend continues. That said, hotter inflation may put the RBA in a challenging situation of a deteriorating labour market and sticky inflation. Hot CPI could lift AUD/USD, especially as the RBA is close to the end of the rate-cutting cycle, but the Fed is expected to cut substantially before the end of 2026.  

SNB rate decision (Thursday) 

SNB is expected to leave the policy rate unchanged at 0% after cutting the rate in June. August inflation was in line with expectations of 0.2% year on year, versus the 0.1% average the SNB looks for over Q3. So far, the inflation trend is moderately hotter than the SNB forecast. Importantly, the chairman has said the bar is high to go into negative territory, but they would do it if necessary. The market sees just a 5% probability of a cut into negative territory, with more focus on December to see how the price picture looks then. A cautious sounding SNB could lift the USD/CHF. 

Tokyo CPI (Thursday) 

Tokyo CPI, which is considered a good lead indicator for the national CPI, will be released on Friday. Data comes after the BoJ’s recent meeting, where they left interest rates on hold, although the split board signaled a hawkish shift. As a result, the chances of an October rate hike have been heightened. Governor Ueda emphasised that the central bank will be watching the effects of US tariffs on the data. However, he also noted that the economy was showing resilience to tariff impacts so far. Underlying inflation remains below 2% but is close to the level. Ueda also notes that recent CPI data is consistent with the BoJ’s outlook. Hotter-than-expected inflation could boost the yen and pull USD/JPY lower. 

US core PCE (Friday) 

After the PPI report came in below expectations and the CPI report for August came in as expected, attention will be on this week’s core PCE report, the Federal Reserve’s preferred gauge for inflation. Core PCE is expected to rise 0.3% month on month. The data comes as the Fed cut interest rates by 25 basis points last week and increased its median forecast for rate cuts to 50 basis points before the end of the year. The Fed left inflation forecasts at 3% in 2025 but lifted 2026 to 2.6% suggesting that inflation could be above target for some time. Hotter than expected core PCE could raise questions about the Fed ‘s ability to cut rates in October and December. This could pull stocks such as the Nasdaq 100 lower. 

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