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Central banks in focus; diverging currency trends emerge
During the week, monetary policy decisions by several major central banks will be announced. On Wednesday, September 17, the Federal Reserve and the Bank of Canada will present their benchmark rate decisions. Meanwhile, on Thursday 18 and Friday 19 it will be the turn of the Bank of England and the Bank of Japan, respectively.
The investing public awaits monetary policy decisions during the week from the U.S., U.K., Canada, and Japan.
European markets ended higher despite Fitch Ratings’ downgrade of France’s credit rating.
Industrial production and retail sales slowed in China; meanwhile, new-home prices contracted.
The investing public expects the Bank of Japan to keep interest rates unchanged amid low growth and elevated inflation.
Fitch Ratings downgraded France’s rating; markets await Fed data
Fitch Ratings downgraded France’s sovereign credit rating. However, European markets did not show a negative reaction. The French stock index (CAC 40) closed up 0.92%, the German DAX rose 0.21%, and the Spanish IBEX gained 0.57%. In turn, the euro appreciated by 0.25%. The strongest-performing sectors were defense and energy, reflecting ongoing geopolitical tensions in Europe and the Middle East.
Globally, investors appear focused on this week’s monetary policy decisions. The consensus of analysts expects the Bank of Canada and the Federal Reserve to lower their benchmark interest rates by 25 basis points. Meanwhile, the Bank of England and the Bank of Japan are expected to keep their policy rates unchanged.
The most consequential release this week is likely the Fed’s decision, as market participants anticipate the start of a monetary easing cycle. In addition, an update to the institution’s economic projections is expected, which should offer further clues about the probable path of policy.
Industrial production and retail sales in China slow
China’s industrial production (year-on-year) came in below expectations at 5.2% (previous 5.7%). Meanwhile, retail sales were updated at 3.4%, below expectations and the previous 3.7% (year-on-year). In both cases, the data point to a slowdown.
In turn, new-home prices contracted by approximately 2.5% year-on-year as demand remains weak. Despite the monetary and fiscal incentives implemented by the Chinese government, housing demand has not regained momentum. The real estate sector remains highly relevant to the Chinese economy, accounting for approximately 25% of the country’s GDP.
Nevertheless, the Chinese stock index (FTSE A50) appreciated by 0.22%, extending the upward momentum that began in April 2025.
Sideways Japanese yen ahead of the BoJ’s monetary policy decision
The consensus of analysts expects the Bank of Japan to keep its benchmark interest rate unchanged at 0.5% on Friday, September 19. Although there had been estimates that the BoJ might begin a tightening process, the macroeconomic backdrop is mixed. Economic growth has averaged just 0.4% quarter-on-quarter over the past year, while inflation is elevated at 3.1% year-on-year, implying negative real interest rates.
At the same time, uncertainty around trade policy persists. Despite the U.S.–Japan trade agreement—under which some tariffs were reduced to 15%—several sectors have already experienced supply-chain disruptions.
Given the monetary and economic uncertainty, it is difficult to gauge the likelihood of any imminent change in the BoJ’s policy rate. The principal argument for tightening would be a meaningful overshoot of current inflation levels. Consequently, the Japanese yen is oscillating between 146.50 and 148.50 per dollar. In sum, both the Fed’s and the BoJ’s decisions will be highly relevant to any significant move in the USD/JPY exchange rate.
Key economic events this week
Monday
- China: Industrial Production YoY
- China: Retail Sales YoY
Tuesday
- U.K.: Unemployment Rate
- U.S.: Retail Sales MoM
- Canada: Inflation Rate
- Japan: Balance of Trade
Wednesday
- U.K.: Inflation Rate
- U.S.: Building Permits
- Canada: BoC Interest Rate Decision
- U.S.: Fed Interest Rate Decision
- U.S.: Fed Press Conference
Thursday
- U.K.: BoE Interest Rate Decision
- Japan: Inflation Rate YoY
Friday
- Japan: BoJ Interest Rate Decision
- U.K.: Retail Sales MoM
