Expectations Solidify that Fed Will Resume Rate Cutting Next Week – Currency Thoughts
Expectations Solidify that Fed Will Resume Rate Cutting Next Week
September 12, 2025
The dollar is modestly firmer this Friday. It’s biggest advance overnight, a 0.4% rise against the yen, was encouraged by a joint U.S.-Japanese statement reaffirming a long-established pledge to let economic fundamentals determine exchange rate values but also asserting that sharply volatile currency swings are unwelcome. The dollar also rose 0.2% relative to sterling, the Swiss franc and Aussie dollar and by 0.1% versus the euro and Canadian dollar.
A slightly greater-than-forecast 0.4% monthly consumer price increase last month reported yesterday pointed to a clearer impact from increased U.S. tariffs, but the stock market rally that ensued highlighted a shifting mind-set regarding policy priority amid signs that U.S. labor market has been weakening more quickly than heretofore realized. A 27K jump in new jobless insurance claims last week to its 263K (most since the week of October 23, 2021) was the latest proof of such. And the clear inference of that revelation is that even with near-term inflation risks edging upward, the Federal Reserve will end the pause in interest rate cutting next week and that more cuts before the end of 2025 are probably happening, too.
The IMF agrees that the U.S. economies is showing signs of strain after years of impressive resilience. In emerging from the pandemic, U.S. real GDP had increased on average by 6.1% in 2021, 2.5% in 2022, 2.9% in 2023 and 2.8% last year but the annualized growth rate over the first two quarters of 2025 has been just 1.375%.
Stock markets in the Pacific Rim rose 1.5% in South Korea, 1.4% in Indonesia, 1.0% in Taiwan and 1.0% in Taiwan. Euroland equities have given up ground, however, and U.S. share prices paused in futures trading after record closes in the major indices yesterday.
Ten-year sovereign debt yields have jumped six basis points in France and Italy, five bps in Spain and Germany, four bps in Great Britain and a basis point in Japan. Oil has been a big mover, gaining 1.5% in price overnight. Gold is 0.3% higher, and Bitcoin has dropped 0.5%.
Interest rates have been cut in both Peru and Russia. Late Thursday came word from the Central Reserve Bank of Peru that its reference rate is being reduced by 25 basis points to 4.25%, defying expectations of no cut this time. Earlier 25-bp reductions amounted to a full percentage point in the final four months of 2023, 175 bps during 2024 and 50 bps during the first half of this year. In making this 14th cut of 25 basis points since September 2023, officials noted that “as a result, the interest rate is very close to the level estimated as neutral.” That a signal that not much more, if any, easing will be done.
A cut today in the Central Bank of Russia’s interest rate to 17% from 18% was smaller than the prior 200 basis point cut in July and what analysts had been anticipating. Russian consumer price inflation has receded from a 26-month high of 10.3% in March to 8.1% as of August, but that’s still double the medium-term target of 4.0%. A released statement acknowledges that “inflation expectations have not changed considerably in recent months” and may remain “elevated” and in turn “impede a sustainable slowdown in inflation.” The central bank’s interest rate has been all over the map during the war with Ukraine from as low as 7.5% from October 2022 until July 2023 and as high as 21% from October 2024 until this past June.
German, French and Spanish consumer price inflation in August of 2.2%, 0.9% and 2.7% were left unrevised from their preliminary estimates.
The EUR 125.4 billion German current account in January – July of this year was 23% smaller than a year earlier.
The British goods and services trade deficit in the first seven months of 2025, GBP 31.97 billion, was 21% wider than a year earlier.
Monthly British GDP in July was unchanged from June’s level and 1.4% higher than a year earlier. British industrial production sank unexpectedly by 0.9% in July and just 0.1% above its year-earlier level. Factory output slumped 1.3%, while construction ticked up 0.2%. The U.K. Royal Institute of Chartered Surveyors’ house price balance index in August of -19% was the lowest reading in 19 months.
The drop of Japanese industrial production during July got revised inward to -1.2% from -1.6% reported initially. Compared to July 2024 levels, production fell 0.4%, and capacity usage was 0.5% lower.
New Zealand’s purchasing managers index dropped back below the 50 neutral level to 49.9 in August marking its third sub-50 reading in four months.
Consumer price inflation in India was 2.07% last month, up from July’s 97-month low of 1.6%.
Serbian CPI inflation of 4.7% was at a 2-month low after July’s 15-month high of 4.9%.
New yuan loans in China last month was the smallest amount for an August in 14 years. An 8.8% on-year rise in the M2 stock of Chinese money matched July’s result.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Russia, Central Reserve Bank of Peru, IMF comment on U.S. economy
ShareThisYou can leave a response, or trackback from your own site.
