IC Trading Europe Fundamental Forecast | 05 September 2025
What happened in the Asia session?
The September 5, 2025, Asian session was characterized by cautious optimism driven by formalized U.S.-Japan trade terms and continued Fed easing expectations, while underlying economic concerns persisted in China and broader labor market weakness in the United States. The most impacted instruments were Japanese equities and the yen due to the trade agreement implementation, while U.S. dollar weakness benefited most Asian currencies marginally. Friday’s U.S. employment report remains the critical catalyst that could solidify or challenge current Fed policy expectations, with significant implications for global risk appetite and currency dynamics heading into the weekend.
What does it mean for the Europe & US sessions?
Today’s trading sessions will be dominated by the US employment report, which could determine whether the Federal Reserve cuts rates by 25 or 50 basis points in September. Oil prices face continued pressure from supply concerns and OPEC+ meeting expectations, while gold maintains its record-breaking momentum on Fed easing expectations. European markets await next week’s ECB meeting with rates expected to remain unchanged, and UK data remains in limbo due to statistical delays.
The Dollar Index (DXY)
Key news events today
Average Hourly Earnings m/m (12:30 pm GMT)
Non-Farm Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from DXY today?
The US Dollar faces significant pressure on Friday, September 5, 2025, as markets await the crucial August Non-Farm Payrolls (NFP) report amid mounting expectations for a Federal Reserve rate cut later this month. The Dollar Index (DXY) has fallen to 98.1 as of Friday morning, declining 0.17% from the previous session and down 3.04% over the past 12 months. Markets are anticipating the August jobs report to show continued labor market weakness, with economists forecasting only 75,000 new jobs added compared to July’s disappointing 73,000. The unemployment rate is expected to rise to 4.3% from 4.2%, while average hourly earnings are projected to moderate to 3.7% year-over-year from 3.9%.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at its meeting on July 29–30, 2025, keeping policy unchanged for the fifth consecutive meeting.
- The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.
- Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation remains somewhat elevated, with the PCE price index at 2.6% and a core inflation forecast of 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.
- The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.
- In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.
- The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.
- As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.
- The next meeting is scheduled for 16 to 17 September 2025.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Average Hourly Earnings m/m (12:30 pm GMT)
Non-Farm Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from Gold today?
Gold’s position near record highs reflects a confluence of supportive factors that extend beyond traditional monetary policy considerations. The combination of dovish Fed expectations, political pressure on central bank independence, ongoing geopolitical tensions, and structural central bank demand has created an exceptionally bullish environment for precious metals
With the critical U.S. jobs report due Friday and the Fed’s September 17 meeting approaching, gold remains poised for continued strength. The fundamental drivers supporting the rally, particularly concerns about institutional credibility and the shift toward lower interest rates, appear sustainable through the remainder of 2025.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The euro enters September 2025 facing mixed fundamentals: inflation slightly above target, growth momentum slowing, but monetary policy providing stability. The digital euro project advances despite political resistance, while trade uncertainty remains the primary near-term challenge. Technical consolidation around current levels appears likely, with modest upside bias emerging if Fed easing continues and eurozone data stabilizes through Q4 2025.
Central Bank Notes:
- The Governing Council kept the three key ECB interest rates unchanged at its July 24 meeting, maintaining the main refinancing rate at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%, following eight consecutive cuts preceding this decision.
- The decision to hold rates steady was driven by evidence that inflation is stabilizing near the Governing Council’s medium-term target of 2%. Policymakers communicated that further rate moves would be data-dependent, explicitly refraining from pre-committing to any future path amid persistent global and domestic uncertainties.
- According to the latest Eurosystem staff projections, headline inflation is expected to remain around 2.0% for 2025, with projections indicating 1.6% for 2026 and a rebound to 2.0% in 2027. Downward revisions from previous forecasts primarily reflect lower energy price assumptions and a stronger euro. Inflation excluding energy and food is seen averaging 2.4% in 2025 and 1.9% in 2026–2027, little changed from prior projections.
- Real GDP growth for the Eurozone is forecast at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. The projections note that a strong first quarter offsets a weaker outlook for the rest of 2025. While business investment and exports are dampened by ongoing trade policy uncertainties—including recent U.S. tariff measures—rising government investment, particularly in defense and infrastructure, is expected to progressively underpin growth.
- Household spending should be supported by firm real income gains and a still-solid labour market. More favorable financing conditions are expected to help strengthen the economy’s resilience to further global shocks. Wage growth, although still elevated, continues to moderate, with profit margins partially absorbing cost pressures.
- Amid significant geopolitical and economic uncertainty, the Governing Council underscored its commitment to ensuring inflation stabilises sustainably at the 2% target. The ECB reiterated it would pursue a meeting-by-meeting, data-dependent approach to its monetary policy stance.
- Future rate decisions will be guided by the assessment of incoming economic and financial data, the outlook for inflation and underlying inflation dynamics, and the effectiveness of monetary policy transmission. The Council continues to stress that it is not pre-committed to any specific rate trajectory.
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are continuing to decline in an orderly and predictable way, as the Eurosystem has ceased reinvesting principal payments from maturing securities.
- The next meeting is on 11 September 2025
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss Franc enters September 5, 2025, in a relatively stable position despite facing multiple economic challenges. While the currency continues to benefit from its safe-haven status and has strengthened over the past year, Switzerland’s economy grapples with the impact of significant US tariffs, slower growth, and ongoing uncertainty about monetary policy direction. The upcoming SNB meeting on September 25 will be crucial in determining whether the central bank maintains its current accommodative stance or considers further easing measures to support the economy through these challenging times.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.
- Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.
- Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026, and 0.7% for 2027.
- The global economy continued to grow at a moderate pace in the first quarter of 2025, but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
- Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.
- Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.
- The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 25 September 2025.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
Retail Sales m/m (6:00 am GMT)
What can we expect from GBP today?
The British Pound faces a complex environment on September 5th, 2025. While showing short-term resilience with today’s modest gains, the currency confronts significant challenges from accelerating inflation (expected to hit 4% this month), fiscal uncertainty ahead of the November budget, and increasingly cautious Bank of England policy. The BoE’s split committee and Governor Bailey’s hawkish shift suggest fewer rate cuts than previously anticipated, with markets now pricing only a 40% chance of a cut by year-end. Near-term trading will likely be dominated by US employment data and its implications for Federal Reserve policy, while longer-term Pound performance depends on the UK’s ability to manage its fiscal challenges and bring inflation under control.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted on 7 August 2025 by a majority (exact split likely 5–3–1 or similar, based on expectations) to cut the Bank Rate by 25 basis points to 4.00%. Multiple members supported the move, citing fragile economic growth and signs of disinflation, while others preferred a larger reduction, and at least one member voted to hold the rate steady due to concerns about persistent inflation.
- The Committee unanimously decided to continue reducing the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next 12 months, targeting a balance of £558 billion by October 2025. As of 7 August, the gilt stock stands at £590 billion.
- Disinflation has been substantial since 2023 owing to policy tightening and the fading of external shocks. However, an unexpected uptick in headline CPI inflation—to 3.6% in June—reflects pass-through from regulated prices and earlier energy price rises, as well as signs of sticky core inflation.
- Headline CPI inflation is now 3.6%, above the Bank’s 2% target, reflecting regulated and energy price effects. The Committee expects inflation to remain around this level through Q3 before resuming its downward trend into 2026.
- UK GDP growth remains weak. Business and consumer surveys point to lacklustre activity, and the labour market continues to loosen, with increasing evidence of slack. Wage growth has softened but remains above pre-pandemic norms.
- Pay growth and employment indicators have moderated further, and the Committee expects a significant slowing in pay settlements over the rest of 2025.
- Global uncertainty remains elevated, especially with rising energy prices and supply disruptions linked to conflict in the Middle East and renewed trade tensions. These factors prompt the MPC to remain vigilant in monitoring cost and wage shocks.
- The risks to inflation are considered two-sided. With the outlook for growth subdued and inflation persistence less clear, the Committee argues that a gradual and careful approach to further easing is warranted, with future policy decisions highly data-dependent.
- The Committee’s bias is still towards maintaining monetary policy at a restrictive stance until there is firmer evidence that inflation will return sustainably to the 2% target over the medium term. Further adjustments to policy will be decided on a meeting-by-meeting basis, with scrutiny of developments in demand, costs, and inflation expectations.
- The next meeting is on 18 September 2025.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
Ivey PMI (2:00 pm GMT)
What can we expect from CAD today?
The Canadian Dollar faces a complex environment on September 5, 2025, with immediate downward pressure from weak economic fundamentals balanced against improving medium-term prospects. Today’s employment data release will be crucial for confirming market expectations of a September rate cut by the Bank of Canada. While the currency has weakened in recent sessions, analysts anticipate strengthening over the coming year as the BoC’s easing cycle nears completion and expected US Federal Reserve rate cuts help stimulate Canada’s economy. The key factors to watch include the employment report results, ongoing US-Canada trade dynamics, and the BoC’s September 17 rate decision.
Central Bank Notes:
- The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% as of July 30, marking the third consecutive meeting with rates on hold.
- The Council cited ongoing U.S. tariff adjustments and unresolved trade negotiations as driving factors for elevated economic uncertainty. The persistence of tariffs well above early-2025 levels continues to present downside risks for growth and keeps inflation expectations elevated, supporting a cautious approach to monetary easing.
- The lack of a clear U.S. policy path, plus frequent threats of additional tariffs, led the Bank to highlight risks to Canadian exports and broader demand, amplifying uncertainty about future growth.
- Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.
- Canadian GDP growth is expected to be near 0% in Q2 2025, closely aligned with the more optimistic scenario outlined earlier in the year. Weakness in manufacturing activity—driven by both U.S. trade disruptions and sector-specific challenges like wildfires—contributed to softer output. A partial recovery is anticipated in Q3 due to rebuilding efforts and stronger retail sales in June.
- Consumer spending slowed, especially as households front-loaded durable goods purchases ahead of tariffs. Housing activity remains subdued, with resales and construction still soft despite some government tax relief measures.
- Headline CPI inflation continued to ease, holding close to 1.7% in June, aided by declines in energy prices following the removal of the fuel charge. However, the Bank’s measures of core inflation and underlying price pressures moved up further due to higher import costs from tariffs and lingering supply disruptions.
- The Governing Council reiterated that it will carefully weigh ongoing upward inflation pressure from tariffs and cost shocks against the gradual downward pull from economic weakness. While additional rate cuts remain possible, timing and scale will depend on trade policy developments and inflation’s path.
- The next meeting is on 17 September 2025.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil markets are facing a perfect storm of bearish factors on Friday, September 5, 2025. The combination of OPEC+ considering further production increases, unexpected US inventory builds, and weakening global demand growth is pushing prices to multi-week lows. While geopolitical tensions from the Russia-Ukraine conflict and Trump’s pressure on Europe provide some support, the fundamental outlook appears challenging, with major forecasters predicting significant price declines through 2026.
Next 24 Hours Bias
Medium Bearish
