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Nomura’s Global Markets Research team, including Josie Anderson, George Buckley and Andrzej Szczepaniak, notes that UK CPI data for August came in broadly as expected, with headline inflation at 3.1% and core and services measures unchanged. They argue this likely secures an unchanged Bank Rate from the BoE in September, but highlight that rising energy prices and the Iran war could push inflation higher and increase pressure for future tightening.

BoE seen holding as energy bites

"This is unlikely to be the final word on rising inflation, with elevated energy prices likely to exert further upward pressure on inflation over the rest of the year. Policymakers are therefore likely to come under increasing pressure to make policy more restrictive, particularly if the Iran war continues to drive upside inflationary pressures."

"As today’s figures were broadly in line with consensus, they likely cement a BoE decision to leave rates unchanged this week. Comments from policymakers have made it clear that they are likely comfortable with Bank Rate where it is for now, particularly as they view it as restrictive and that they would have reduced it this year if not for the Iran war."

"However, surging energy prices once again are raising the prospect of central bank tightening and, while today’s data did not surprise, inflation is now above 3%, and we expect it to move higher in coming months, likely increasing the pressure on the MPC to raise rates."

"Elsewhere, looking at upstream prices, output prices were weaker than we expected, rising by 0.7% m-o-m (we had thought the rise in energy prices would push this figure even higher) and input prices were also softer, rising by 0.3% m-o-m, while we had expected a 0.5% increase (though we note the July fall was revised smaller)."

"The lack of an increase in core and services inflation likely cements an unchanged Bank Rate decision from the BoE this week, following yesterday’s mixed labour market report. Despite rising energy prices, BoEspeak has been clear that the majority of the MPC likely prefers to keep rates where they are this month."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

ING’s Bert Colijn notes that Eurozone industrial production slipped by 0.1% in both June and July, leaving output broadly unchanged from a year earlier. He highlights resilience in capital goods and energy, but continued weakness in consumer-focused sectors, especially non-durable goods. Colijn adds that improving manufacturing sentiment and stronger PMI data suggest potential for better performance later in the year.

Industrial output soft but sentiment improves

"After a weak January, eurozone industrial production grew for four months in a row despite the Middle East crisis and higher energy prices. A boost from European industry's relative comparative advantage over Asia helped a surprisingly resilient production recovery. Besides that, extra defence spending efforts are helping certain manufacturing sectors more structurally."

"The latest industrial production figures are hardly disastrous, but they do underline a picture of lost momentum. Production in the eurozone fell by 0.1% in July after already declining by 0.1% in June, leaving production broadly flat compared with a year earlier. While sectors such as capital goods and energy still showed some resilience, weakness in consumer-oriented industries remains striking, particularly for non-durable consumer goods, where production was down sharply compared with last year."

"But while production figures are still lacklustre, sentiment among manufacturing corporates is becoming more upbeat again. The PMI indicated accelerating output in August, despite energy prices rising again. So while manufacturing is unlikely to contribute much to GDP growth over 3Q, there is hope for stronger performance towards the end of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• EUR/USD consolidates near a one-month low as the US Dollar holds firm ahead of the Fed decision.
• A 25-basis-point rate hike is almost fully priced in, shifting attention to the dot plot and Warsh’s remarks.
• The ECB also keeps the door open to more rate hikes if inflation fails to cool.

EUR/USD consolidates losses on Wednesday as traders avoid taking strong directional positions ahead of the Federal Reserve’s (Fed) monetary policy announcement. At the time of writing, the pair trades around 1.1537, little changed on the day and not far from the one-month low of 1.1523, touched on Monday.

The Fed will announce its decision at 18:00 GMT, followed by Fed Chairman Kevin Warsh’s press conference at 18:30 GMT. The US Dollar (USD) holds firm near two-week highs as traders almost fully price in a 25-basis-point rate hike, which would lift the federal funds target range to 3.75%-4.00%.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.70.

The expected move comes as the energy shock caused by the war in the Middle East threatens to keep inflation above the Fed’s 2% target. The latest Consumer Price Index (CPI) rose 0.4% MoM in August, while annual inflation held at 3.4%. Core CPI increased 0.3% during the month, while the Producer Price Index (PPI) also rose 0.4%.

Other economic data have also supported the case for tighter policy. The strong August Nonfarm Payrolls (NFP) report points to a stable labor market. Meanwhile, Data released earlier on Wednesday showed Retail Sales rose 1.2% MoM in August, beating expectations of a 0.8% increase and rebounding from a revised 0.5% decline in July.

However, with a quarter-point move almost fully priced in, the immediate interest-rate decision may have a limited effect on EUR/USD. Attention will instead turn to the updated Summary of Economic Projections, including the dot plot, and Warsh’s comments about the future policy path. The Fed’s June dot plot showed a median year-end rate projection of 3.8%, consistent with a one-quarter-point increase in 2026.

A hawkish Fed message indicating that inflation risks remain elevated and more rate hikes are coming could boost the US Dollar and push EUR/USD lower. Conversely, a surprise hold or a dovish hike could weaken the Dollar and help the pair recover.

Across the Atlantic, the European Central Bank (ECB) has raised interest rates twice this year as policymakers try to curb Oil-driven inflationary pressure. Markets expect additional tightening, although the central bank has reiterated that it is not committed to a preset rate path and that future decisions will depend on incoming data. This suggests that more rate hikes could follow if inflation fails to cool.

Analysts at BNY expect the ECB’s Governing Council to proceed cautiously after September, noting that “the Governing Council will likely decide meeting by meeting after September, and opinions are already split.” They highlight that “some members favor waiting until December while others are pushing for more preemptive action as energy prices continue to rise,” underscoring the internal debate over how aggressively to respond to the latest energy shock.

In BNY’s view, “data don’t support a strong domestic-demand story to drive core inflation and second-round effects,” limiting the case for further aggressive tightening. The bank also stresses that “higher rates can’t produce energy; they can only deepen the terms-of-trade shock,” arguing that while “ECB vigilance is warranted,” this “doesn’t make another increase automatic.”

• Silver gains 1.32% on Wednesday as investors adjust their positions ahead of the Fed’s monetary policy decision.
• A 25-basis-point interest rate hike is widely expected amid persistent inflationary pressures.
• Attention turns to the monetary policy statement and Kevin Warsh’s press conference.

Silver (XAG/USD) rebounds on Wednesday and trades around $64.00 per troy ounce at the time of writing, up 1.32% on the day. The grey metal recovers some of its recent losses as investors adjust positions ahead of the highly anticipated Federal Reserve (Fed) monetary policy decision, scheduled for 18:00 GMT.

Markets widely expect a 25-basis-point (bps) interest rate hike, which would bring the federal funds target range to 3.75%-4.00%. Such a move would mark the first interest rate increase by the US central bank since July 2023.

Expectations of tighter monetary policy have strengthened amid persistent inflationary pressures in the United States (US), partly fueled by the energy price shock stemming from the conflict in the Middle East. At the same time, the resilience of the US economy gives the Fed more room to tackle inflation. US Retail Sales rose 1.2% MoM in August, exceeding expectations for a 0.8% increase and rebounding from a 0.5% contraction in July.

With an interest rate hike already largely priced in, Silver’s reaction is likely to depend primarily on the message accompanying the decision. Investors will closely monitor the monetary policy statement, the Fed’s updated economic projections and Fed Chairman Kevin Warsh’s press conference, scheduled for 18:30 GMT.

Markets will be particularly focused on whether policymakers signal that the tightening cycle could continue. According to the CME FedWatch Tool, investors see a nearly 79% probability that the Fed will deliver at least two interest rate hikes by the end of the year.

The prospect of interest rates remaining higher for longer represents a headwind for Silver, which does not offer any yield. Higher interest rates tend to support US government bond yields, increasing the opportunity cost of holding precious metals. The benchmark 10-year US Treasury yield trades around 5.00% after reaching 5.04% on Tuesday, its highest level since 2007.

The US Dollar (USD) also remains firm ahead of the Fed decision, potentially limiting Silver’s upside. A stronger US Dollar generally makes USD-denominated metals more expensive for investors holding other currencies.

Against this backdrop, Silver’s direction could depend less on the widely expected rate hike itself than on the Fed’s guidance regarding the path ahead. A message pointing to further interest rate increases could support US Treasury yields and the US Dollar, putting pressure on the grey metal. Conversely, a lack of clear commitment to additional tightening could allow Silver to extend its rebound.

XAG/USD technical analysis

In the one-hour chart, XAG/USD trades at $64.46. The pair holds above the 100-hour Simple Moving Average (SMA) at $63.88 while still trading below the 200-hour SMA at $65.18, keeping a neutral to slightly constructive intraday tone as price consolidates between these trend filters. The Relative Strength Index (14) near 57 hints at mildly positive momentum, suggesting buyers retain a modest edge as long as the metal stays supported above nearby underlying levels.

On the downside, initial support emerges at $64.30, ahead of a lower horizontal floor at $63.95 and the 100-hour SMA clustered just below at $63.88, where dip-buying interest could reappear. On the topside, immediate resistance aligns at $64.95, with the 200-hour SMA at $65.18 and a higher horizontal barrier at $65.40 forming a dense supply zone that XAG/USD must clear to extend any recovery toward higher levels.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Brown Brothers Harriman’s (BBH) Elias Haddad says the US Dollar (USD) remains supported by energy-driven risk aversion ahead of the FOMC decision. With markets already pricing substantial Fed tightening, he sees asymmetric risks for USD, with limited upside from a hawkish outcome but greater downside from a dovish surprise. Haddad adds that current US economic conditions do not warrant an aggressive tightening cycle.

Fed path shapes Dollar outlook

"USD is holding on to this week’s gains, triggered by energy-shock risk aversion. The slump in bonds and stocks stabilized as the overshoot in crude oil prices stalled. Worrisomely, Iran has every incentive to keep the heat on ahead of the November 3 midterms and hurt Republicans."

"For now, all eyes are on today’s FOMC decision (7:00pm London, 2:00pm New York). The FOMC is poised to deliver a 25bps hike to a target range of 3.75%-4.00% after five straight holds, marking its first hike since July 2023. Persistently above target US inflation and a stable labor market justify a rate increase."

"Fed funds futures price in 94% odds of a hike today. As such, the vote split, updated Summary of Economic Projections, and Fed Chair Kevin Warsh’s press conference will guide the market reaction."

"The swaps curve already implies almost 100bps of tightening over the next twelve months: 25bps today, another 25bps hike by year-end, and nearly 50bps by September 2027. This creates an asymmetric risk for USD with limited gains from a hawkish outcome, but greater downside from a dovish surprise."

"In our view, the US economy does not warrant an aggressive tightening cycle. The slowdown in wage growth is disinflationary, and Fed policy is already somewhat restrictive against a nominal neutral rate of around 3.00%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

MUFG’s Henry Cook expects the Bank of England to deliver a hawkish hold, with UK inflation driven higher by energy and headline CPI projected to exceed 4% after the January price cap reset. The report highlights a soft labour market and limited domestic price pressures, but still anticipates 50bp of BoE tightening starting in November, contingent on energy prices.

BoE weighs hawkish hold and hikes

"Against that background we expect the BoE will deliver a fairly hawkish hold at tomorrow’s meeting and provide a signal that a rate hike in November is on the cards if energy pricing remains elevated. We have pencilled in a 6-3 vote again, but a 5-4 split would be no surprise, with Lombardelli being the most likely to join the dissenters. For now, a majority on the MPC is likely to believe that a ‘wait-and-see’ approach is still tenable."

"That position looks increasingly shaky given energy market developments, and we expect the case for pre-emptive tightening on a risk management basis will gain traction. Our base case is for 50bp of hikes starting in November."

"In terms of our call, we now see 50bp of BoE tightening. Pill argued that some tightening would manage upside risks to inflation and “need not be the start of a prolonged and aggressive series of increases”. Indeed, current market pricing for 100bp of hikes looks overdone to our minds given the soft labour market and lack of any broadening price pressures."

"On timing, if the threshold for pre-emptive tightening is deemed to have been reached by November, then a back-to-back move in December would certainly be plausible. That would tally with our current view on the ECB path. However, unlike the ECB, the BoE already has rates in restrictive territory – just about – and the UK labour market is soft."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)