Forex Today: Eyes on the BoE verdict after Fed’s cautious cut
Here is what you need to know on Thursday, September 18:
Markets remain in a cautiously optimistic mood early Thursday, assessing the US Federal Reserve’s (Fed) prudence on further easing, while gearing for the expected interest rate cut-hold by the Bank of England (BoE) later in the day.
The US Dollar (USD) is building on its post-Fed event recovery, with the US S&P 500 futures up roughly 0.30% so far. The USD Index is bouncing back toward 97.50, as of writing, adding 0.25% on the day.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.15% | 0.30% | 0.28% | 0.15% | 0.48% | 1.04% | 0.24% | |
| EUR | -0.15% | 0.02% | 0.14% | 0.01% | 0.31% | 0.98% | 0.11% | |
| GBP | -0.30% | -0.02% | 0.12% | -0.03% | 0.27% | 0.89% | 0.09% | |
| JPY | -0.28% | -0.14% | -0.12% | -0.14% | 0.12% | 0.72% | -0.02% | |
| CAD | -0.15% | -0.01% | 0.03% | 0.14% | 0.31% | 1.02% | 0.10% | |
| AUD | -0.48% | -0.31% | -0.27% | -0.12% | -0.31% | 0.70% | -0.20% | |
| NZD | -1.04% | -0.98% | -0.89% | -0.72% | -1.02% | -0.70% | -0.77% | |
| CHF | -0.24% | -0.11% | -0.09% | 0.02% | -0.10% | 0.20% | 0.77% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The Greenback plunged to a three-and-a-half-year low of 96.22 against its six major currency rivals on Wednesday after the Fed’s Summary of Economic Projections (SEP), the so-called Dot Plot chart, showed that the Fed policymakers projected two additional rate cuts this year.
The Fed announced the widely expected 25 basis points (bps) interest rate cut to 4%-4.25% for the first time this year.
However, the USD quickly changed course and rebounded alongside US Treasury bond yields after Fed Chairman Jerome Powell, in his post-policy meeting press conference, adopted a measured rhetoric on further rate cuts.
Powell noted that “the policy action as a risk-management cut in response to the weakening labor market and the central bank is in a ‘meeting-by-meeting’ situation,” per Reuters.
Despite the cautious cut, markets price in a 87.7% chance of another 25 bps cut at the Fed's October meeting, compared to a 74.3% probability a day earlier, according to the CME Group's FedWatch tool.
All eyes now turn to the BoE policy announcements. Amid the highest inflation level since early 2024 and slowing pay growth in the United Kingdom (UK), markets are expecting to reiterate its ‘gradual and careful approach" to further cuts in borrowing costs after holding the benchmark rate steady at 4%.
GBP/USD extends its pullback from over two-month highs of 1.3726 to now challenge the 1.3600 barrier. Traders reposition ahead of the BoE event risk.
EUR/USD is also on a corrective decline from the highest levels in four years, trading at around 1.1800, awaiting speeches from a slew of European Central Bank (ECB) policymakers.
USD/CAD flirts with 1.3800 early Thursday, digesting the monetary policy decisions by the Fed and the Bank of Canada (BoC). The BoC lowered its key interest rate by 25 bps to 2.5%, marking its first cut since March, as the central bank moves to stimulate a weakened economy.
USD/JPY rebounds firmly in tandem with the USD, eyeing a sustained move above the 147.50 barrier in the European morning.
Meanwhile, the NZD/USD pair remains the laggard so far, as the New Zealand (NZD) falls hard on New Zealand’s economy contracted 0.9% in the second quarter, following a 0.9% rise in the previous quarter, the statistics department Stats NZ reported Thursday.
Gold has extended the pullback below $3,650, with dip-buying expected to re-emerge at lower levels. Traders look to the US Jobless Claims data for fresh trading impetus.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
