Welcome to the Moneycorp Currency Insights for September, as markets move into one of the most significant central bank months of the year, with policy decisions from the ECB, Federal Reserve and Bank of England all scheduled within a seven-day period. Recent moves in energy prices, inflation expectations and interest rate pricing mean that currency volatility could increase markedly over the coming weeks.
The Bank of England currently holds Bank Rate at 3.75%, the Federal Reserve remains at 3.50%-3.75%, and the ECB’s deposit rate stands at 2.25% following its June hike and July pause. Markets are increasingly focused on whether the ECB tightens again on 10 September, while the Fed’s 15-16 September meeting remains finely balanced between another hold and a more hawkish policy response should inflation prove persistent. The BoE follows shortly after on 17 September.
GBP/EUR 1.16 – Strong levels remain available but ECB risk is rising
Sterling continues to trade close to the strongest levels seen against the euro over the past year. However, unlike earlier in the summer, there is now a growing possibility that the ECB could resume tightening policy in response to elevated energy-driven inflation pressures across the Eurozone. While the UK’s inflation backdrop remains sufficiently sticky to prevent near-term BoE cuts, the policy divergence that has supported sterling may not widen much further from current levels.
What it means for clients:
Clients paying EUR costs (imports, suppliers or EUR-denominated expenses) continue to benefit from favourable exchange rates. Current levels may present an opportunity to secure future requirements before the ECB decision.
Clients receiving EUR income should be aware that any shift towards a more hawkish ECB could strengthen the euro and materially alter conversion rates.
With September likely to determine the next policy direction for both central banks, this feels like a sensible point to discuss securing current levels rather than relying on further sterling gains.
GBP/USD 1.35 – September decisions will set the tone into year-end
Unlike August, where markets were largely driven by economic data and Jackson Hole commentary, September brings a live Fed decision. The key question for markets is whether inflation concerns are sufficient to justify a more hawkish stance from Chair Kevin Warsh and the wider FOMC.
While sterling has been resilient, the US dollar remains highly sensitive to incoming employment and inflation data ahead of the 15-16 September meeting. Any indication the Fed may need to tighten policy further could support the dollar and push GBP/USD lower. Conversely, softer data may allow sterling to recover.
What it means for clients:
Clients with USD costs should be prepared for increased volatility over the coming fortnight. Locking in rates ahead of the Fed meeting can remove uncertainty around budgeted costs.
Clients receiving USD revenues may benefit if the dollar strengthens but should recognise that a softer Fed outcome could quickly reverse recent gains.
With a major Fed decision now only days away, hedging discussions are arguably more relevant before the meeting than after it.
EUR/USD 1.16 – Caught between two central banks
EUR/USD is moving away from being solely a dollar story. The ECB’s September decision now has the potential to become just as important as the Fed’s. If the ECB delivers another rate increase while the Fed remains on hold, the euro could find renewed support. Equally, a hawkish Fed coupled with a cautious ECB could return focus to dollar strength.
What it means for clients:
Businesses with exposure to both EUR and USD should expect greater volatility, particularly between 10 and 17 September when the ECB, Fed and BoE all announce policy decisions.
Clients assuming EUR/USD will remain rangebound because both economies are slowing may underestimate the influence that central bank expectations continue to have on the pair.
September’s policy calendar means FX exposure across both currencies deserves close attention.
Key September dates to flag to clients
10 September – ECB Rate Decision
- Markets are increasingly pricing the possibility of another ECB hike. A significant event for EUR pairs.
15-16 September – Federal Reserve Meeting
- The most important US policy event of the month and likely the biggest driver of GBP/USD and EUR/USD.
17 September – Bank of England Rate Decision
- The BoE follows immediately after the Fed, creating the potential for elevated sterling volatility.