Busy Session for Central Bank Watchers – Currency Thoughts
Busy Session for Central Bank Watchers
September 18, 2025
On this Thursday, investors continued to react to yesterday’s interest rate reductions by the Federal Reserve (-25 basis points as expected), Canada (-25 bps as well as expected), Indonesia (an unexpected 25-bp cut). Brazil’s Selic rate was left unchanged for a second straight review at 15.0%, having been hiked 25 bps in June. Meantime, more central banks today have revealed their policy intentions.
By a 7-2 vote with Dhingra and Taylor dissenting with preferences for a modest cut, the Bank of England‘s Monetary Policy Committee decided to leave the Bank Rate unchanged at 4.0%, which matched market expectations. The committee majority remains hopeful but guarded about the medium-term path of inflation, which at 3.8% last month remained well above the 2% target.
Pay growth remains elevated, but has fallen and is expected to slow significantly over the rest of the year. Services consumer price inflation has been broadly flat over recent months. Upside risks around medium-term inflationary pressures remain prominent in the Committee’s assessment of the outlook.
Since the Bank of England’s first rate cut from a crest of 5.25% in August 2024, reductions have each been by just 25 basis points and aligned with prepared quarterly Monetary Policy Reports.
The Bank of Norway as was expected cut its policy interest rate today by 25 basis points to a two-year low of 4.0%. Today’s move was only the second since normalization began three months ago. But today’s explanation behind today’s explanation struck a cautionary tone:
Incoming data since June indicate that there is a little less spare capacity in the economy, and that inflation may remain elevated for a little longer than projected in June. Therefore, we will probably not reduce the policy rate ahead as quickly as envisaged before summer. The forecast presented today is consistent with one rate cut per year in the coming three years.
Central bank rate reductions of 25 basis points were done in both Hong Kong and Macao. Those decisions became necessary when the Fed cut its rate yesterday. Interest rate policy in Hong Kong has been subordinated to maintaining a pegged parity of the former British colony to the U.S. currency. That currency policy began in 1983. Analogously, Macao’s base rate shadows the interest rate of the Hong Kong Monetary Authority. Both interest rates are now at 4.5%.
The Central Bank of the Republic of China (Taiwan) left its interest rate unchanged at 2.0% at this month’s quarterly policy review. Following a cyclical low of 1.125% from March 2020 until March 2022, Taiwan’s interest rate was carefully raised to 2.0% by March 2024 where it has been kept for the past year and a half. Officials today cited several uncertainties that are being monitored and that warrant caution: “the future course of U.S. tariff policy, monetary policy actions of major central banks, China’s economic slowdown, as well as geopolitical conflicts and climate change.”
Moldovan monetary policy has been heavily influenced by the Covid pandemic and the war between Russia and Ukraine, and the interest rate has undergone wild swings this decade. The Bank of Moldova’s policy interest rate was today cut by 25 basis points to 6.0% in a move that analysts had not predicted. This was the fourth rate change of 2025, following a 200-basis point increase in January, another hike in February of 90 bps and a cut of 25 bps in August. Moldovan CPI inflation fell from 34.6% in late 2022 to 3.3% in August 2024, then jumped to 9.1% by January 2025, and has slowed since to 7.3%, which remains above the 3.5-6.5% target range. But GDP has been depressed by weak export demand and posted year-on-year declines in the last three reported quarters.
The South African Reserve Bank retained a 7.0% policy interest rate, aligning with market expectations. Two of the six votes behind this decision actually expressed a preference for a sixth 25-basis point cut. The five previous reductions were made in September and November of 2024 and January, March and July of 2025. A released statement makes upward revisions of inflation and growth in 2025 to 3.4% and 1.2% and characterizes the current pause in rates as follows: “Since September last year, we have reduced rates by 125 basis points, and we want to see how this is affecting the economy, how expectations evolve, and how inflation risks are resolved.”
With a night to mull over the wide range of possibilities implied in the Federal Reserve’s press conference and handouts yesterday, markets seem to have concluded that more easing lies ahead even if inflation stays above the 2% target of perhaps moves up temporarily. Ten-year sovereign debt yields rose so far today by five basis points in France, Italy and Spain, four bps in Germany and the U.K., three basis points in the United States and a basis point in Japan.
The dollar has been well bid today, rising 1.2% against the kiwi, 0.6% versus the yen, 0.3% relative to sterling and the Swiss franc and 0.2% vis-a-vis the euro and Canadian dollar. Bitcoin strengthened 0.7%, but gold fell 0.5%. Oil’s price is modestly firmer.
Stock market performances have been mixed, with losses of 1.4% in Hong Kong, 1.2% in China, 0.8% in Australia and 0.9% in New Zealand but gains of 1.4% in South Korea, 1.3% in Taiwan, 1.2% in Japan, and 1.1% and 1.0% so far in Germany and France. U.S. trading just opened with a rise, led by the tech sector.
One of today’s data release highlights was a reassuring drop in new U.S. jobless insurance claims to 231k last week from 264k in the prior week. This left the 4-week average little changed at 240k.
Construction output in the euro area rose 0.5% in July following declines in both May and June. The 3.2% on-year increase slightly exceeded expectations and was the most since May. A separate Euroland report revealed a decline in the seasonally adjusted current account surplus to a 3-month low of EUR 27.7 billion in July from EUR 35.8 billion in June. The unadjusted surplus over the past 12 reported months equaled 2.0% of GDP, down from 2.7% of GDP in the prior 12 months through July 2024.
Australian employment contracted 5.4k last month, their weakest result since February, but the jobless rate stayed at 4.2% as forecast.
Real GDP in New Zealand fell 0.9% last quarter, reversing the first quarter’s advance and eliciting negative reactions in the economy’s currency and stock market.
Japanese core private domestic machinery orders plunged 4.6% in July, more than reversing a 3% rise in June.
Portugal and Poland reported monthly declines in August producer prices of 0.6% and 0.4%, respectively. A 4.3% year-on-year slide in Portuguese producer prices was the most deflationary reading in 21 months, whereas Poland’s 1.2% PPI drop from August 2024 was a tad less negative than in July. Poland also reported a huge 7.1% decrease of industrial production between July and August.
The Swiss trade surplus printed at CHF 3.89 billion last month, its lowest reading in three months. The 39% U.S. tariff against imports from Switzerland is the highest among all western European economies.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian labor statistics, Bank of Brazil, Bank of England, Bank of Norway, Central Bank of the Republic of China (Taiwan), Hong Kong Monetary Authority, National Bank of Moldova
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