IC – Europe Fundamental Forecast | 21 September 2026
What happened in the Asia session?
Asian markets traded mostly higher today, supported by strength in technology and semiconductor stocks, easing oil prices, and improved sentiment surrounding upcoming U.S.–China trade discussions. However, rising U.S. Treasury yields, expectations of further Federal Reserve tightening, and ongoing Middle East tensions kept currency and commodity markets sensitive to headlines. The Japanese yen remained under intervention watch, while gold faced pressure from higher yields.
What does it mean for the Europe & US sessions?
Markets are focusing on central bank policy, energy supply developments, bond yields, and geopolitical risks. The key events on your calendar today are speeches from ECB President Christine Lagarde and Bank of Canada Governor Tiff Macklem, which could influence the Euro and Canadian Dollar.
The Dollar Index (DXY)
Key news events today
No major news event
What can we expect from DXY today?
The U.S. dollar is receiving support from elevated Treasury yields and expectations of further Federal Reserve interest-rate hikes, while improving oil supply conditions and positive sentiment in Asian equity markets are limiting safe-haven demand. Traders are watching the Fed’s future policy direction, geopolitical developments, and upcoming economic data for the next major move in the USD.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) raised the federal funds target range by 25 basis points to 3.75%–4.00% at its September 15–16, 2026 meeting. The decision was approved unanimously by a 12–0 vote, marking a shift from the July meeting, when rates were held at 3.50%–3.75%. The Fed said the move was intended to support its dual mandate and promote a more timely return of inflation toward its 2% objective.
- The labor market remains relatively resilient. The September FOMC statement said job gains have kept pace with workforce growth and that the unemployment rate has changed little. The Fed continues to monitor employment conditions closely alongside inflation when determining the appropriate path for monetary policy.
- Inflation remains above the Federal Reserve’s 2% target and continues to be a key policy concern. The September decision explicitly noted that inflation remains elevated. The latest projections put median headline PCE inflation at 3.7% for 2026, before falling to 2.3% in 2027, 2.1% in 2028, and 2.0% in 2029. Core PCE inflation is projected at 3.4% in 2026, declining to 2.5% in 2027 and 2.2% in 2028.
- Economic activity continues to expand at a solid pace. The Fed highlighted resilient domestic spending, strong productivity growth and robust capital investment, although uncertainty remains elevated partly because of geopolitical developments. The September projections raised the median 2026 GDP-growth forecast to 2.3%, compared with 2.2% in the June projections.
- The September projections show a higher expected policy-rate path than in June. The median projection for the federal funds rate is now 4.1% at the end of 2026, compared with 3.8% in the June projections. The median is projected at 4.1% in 2027, 3.9% in 2028, and 3.6% in 2029. This indicates that policymakers’ projected rate path remains relatively restrictive while inflation is expected to move gradually toward the target.
- Chair Kevin Warsh continues to emphasize the importance of returning inflation to 2%. Ahead of the September meeting, Warsh indicated that the Fed would have further work to do if policymakers could not gain sufficient confidence that inflation was moving toward the 2% objective. The September decision subsequently delivered a 25-basis-point hike, while the Committee continued to emphasize its assessment of incoming economic data and risks.
- The September economic projections show a more balanced growth outlook but continued inflation risks. The median unemployment forecast is 4.1% for 2026 and 2027, while the Fed projects GDP growth of 2.3% in 2026 and 2.4% in 2027. At the same time, PCE inflation is expected to remain substantially above target through 2026 before moving closer to 2% over subsequent years.
- The next meeting is scheduled for 27 to 28 October 2026.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
No major news event
What can we expect from Gold today?
Gold remains caught between safe-haven demand and monetary-policy pressure. The immediate technical focus is $4,400 on the upside, while the market is watching whether gold can maintain the recovery from the recent $4,235 area. For today’s session, Fed commentary, the USD, Treasury yields, and geopolitical headlines are likely to remain the major catalysts.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The euro is starting the week relatively stable but under pressure, with EUR/USD around 1.1480–1.1490 in early trading. Traders are focused on ECB communication, particularly ECB President Christine Lagarde’s scheduled appearance today, while geopolitical developments and energy prices remain important drivers.
Central Bank Notes:
- The ECB enters October with its policy outlook dependent on the outcome of the 10 September meeting. The latest confirmed decision, from 23 July, kept the deposit facility at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility at 2.65%. The ECB continued to emphasise a meeting-by-meeting and data-dependent approach, with no commitment to a predetermined rate path.
- The euro-area economy remains resilient, but growth is still relatively modest. The latest ECB data show euro-area GDP at €4.1185 trillion in Q2 2026, up 1.2% quarter-on-quarter and 3.6% year-on-year in the latest reported data. However, the economic outlook remains vulnerable to elevated energy costs, geopolitical uncertainty and weaker external demand.
- Inflation remains the key issue for ECB policy. The ECB’s July assessment highlighted that energy prices remained highly volatile and significantly above pre-conflict levels, with the full inflationary impact of the energy shock still uncertain. The ECB is therefore closely monitoring direct energy effects as well as possible second-round effects through wages and broader price-setting behaviour.
- Professional forecasters continue to expect inflation to remain above target in 2026. The ECB’s Q3 Survey of Professional Forecasters projected headline HICP inflation at 2.7% for 2026, falling to 2.2% in 2027 and 2.0% in 2028. Core inflation, excluding energy, food, alcohol and tobacco, was projected at 2.4% in 2026 and 2.2% in 2027.
- Growth expectations have softened. The same ECB survey projects real GDP growth of only 0.6% in 2026, followed by 1.2% in 2027 and 1.3% in 2028. This combination of relatively weak growth and above-target inflation leaves the ECB facing a difficult policy trade-off heading into October.
- The ECB’s balance-sheet normalisation is expected to continue. The APP and PEPP portfolios continue to decline in a measured and predictable manner because the Eurosystem is no longer reinvesting principal payments from maturing securities. This gradual quantitative tightening is expected to continue unless financial-market conditions require the ECB to adjust its approach.
- The main risk for October is the combination of persistent inflation and weak growth. Higher oil and natural-gas prices could keep inflation above the ECB’s 2% target while simultaneously reducing household purchasing power and business activity. This could make the ECB more cautious about easing policy even if economic growth remains weak.
The next meeting is on 29 October 2026
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss franc is under pressure this morning, mainly because of the widening interest-rate gap between Switzerland and the United States. The Fed raised rates last week to 3.75%–4.00%, while the SNB’s policy rate remains at 0%, making the dollar more attractive relative to CHF. USD/CHF is trading around 0.8230, close to recent highs, after the franc lost more than 2% against the dollar over the previous five sessions.
Key developments
Central Bank Notes:
- At its monetary policy assessment on 18 June 2026, the Swiss National Bank left the SNB policy rate unchanged at 0.00%, in line with market expectations. Policymakers maintained that the current policy setting remains appropriate given low inflation and ongoing global economic uncertainty.
- Inflation remains exceptionally subdued in Switzerland. Recent data show consumer price growth staying comfortably within the SNB’s price stability range, with headline inflation around 0.6% year-on-year in May 2026, while underlying inflation pressures remain limited despite higher global energy prices.
- The SNB continues to view medium-term inflation pressures as largely unchanged. While energy prices linked to Middle East tensions have temporarily lifted near-term inflation expectations, the stronger Swiss franc has helped offset imported inflation, supporting the central bank’s decision to maintain rates at current levels.
- External risks remain elevated. Policymakers highlighted ongoing geopolitical tensions, trade uncertainties, and slower global growth prospects, particularly in key export markets such as the Eurozone and the United States. These factors continue to warrant a cautious policy approach.
- Swiss economic activity remains resilient but modest. GDP growth is expected to remain around 1–1.5% in 2026, supported by domestic demand, although manufacturing and export-oriented sectors continue to face challenges from a strong franc and softer foreign demand.
- The SNB reiterated its readiness to act if necessary. The Governing Board emphasized that it remains willing to intervene in foreign exchange markets to counter excessive Swiss franc appreciation and stands prepared to adjust policy should inflation or economic conditions deviate materially from expectations.
The next meeting is on 24 September 2026.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news event
What can we expect from GBP today?
The pound has some domestic support from stronger UK activity and elevated inflation, which keeps the possibility of future BoE tightening alive. However, GBP/USD remains sensitive to U.S. dollar strength and the Fed’s hawkish stance. For today’s session, traders will likely focus more on USD moves and broader risk sentiment, while Wednesday’s UK PMI will be an important upcoming GBP catalyst.
Central Bank Notes:
- Interest-rate decision: The BoE held the Bank Rate at 3.75% at its 17 September 2026 meeting. The MPC voted 6–3, with three members supporting a 25-basis-point increase to 4.00%. The decision reflects a cautious approach as policymakers balance inflation risks against subdued economic activity.
- UK CPI inflation rose to 3.1% in August, up from 2.9% in July, remaining above the BoE’s 2% target. Core CPI remained at 2.6%, while services inflation was 3.4%, indicating that underlying price pressures are still present.
- The ongoing Middle East conflict has contributed to higher and more volatile energy prices. The BoE expects inflation to rise further over the coming quarters, although the eventual impact will depend on how long energy prices remain elevated.
- The UK economy remains subdued, while weaker demand and a cooling labour market create challenges for the MPC. Policymakers must balance the risk of persistent inflation against the possibility of further weakening economic activity.
- Wage growth and services inflation remain important areas of focus. Although core inflation has been relatively stable, the rise in headline inflation means the MPC is likely to remain cautious about easing policy.
- The BoE is reviewing the pace and structure of its balance-sheet reduction. Its latest plans include slowing the pace of gilt sales, reflecting concerns around market conditions and the impact of quantitative tightening.
- The BoE’s next decisions will remain data-dependent, with inflation, energy prices, wage growth and economic activity determining whether rates remain unchanged or increase.
- The next meeting is on 5 November 2026.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
BOC Gov Macklem Speaks (3:05 pm GMT)
What can we expect from CAD today?
The Canadian dollar is starting the week under pressure, with USD/CAD around the 1.40 area after the loonie suffered an extended decline last week. On Friday, USD/CAD reached 1.40144, its highest level since August 7, while the CAD was on track for its eighth consecutive daily decline. The main driver has been the widening U.S.–Canada bond-yield differential, particularly after the Federal Reserve raised rates and signaled further tightening.
Central Bank Notes:
- At its 2 September 2026 meeting, the Bank of Canada maintained the overnight rate target at 2.25%, keeping the Bank Rate at 2.50% and the deposit rate at 2.20%. This marks the seventh consecutive decision at 2.25%. While the decision was expected, the Bank’s communication became somewhat more cautious as inflation risks increased. Governor Tiff Macklem emphasized that the Bank remains prepared to adjust monetary policy if necessary to preserve price stability.
- The Canadian economy has strengthened significantly in the second quarter. GDP expanded at an annualized rate of 3.3% in Q2 2026, following very weak growth in Q1. The recovery was relatively broad-based, with consumer spending remaining resilient while housing activity, exports and business investment also improved. However, the Bank noted that some of the Q2 strength reflected temporary factors and that the sustainability of the recovery remains uncertain because of renewed trade tensions with the United States.
- The labour market has continued to improve, providing additional support for domestic demand. Employment increased by 75,000 in July, while the unemployment rate declined to 6.4%, its lowest level since July 2024. Wage growth, however, continued to moderate, with average hourly wages rising 2.8% year over year in July compared with 3.3% in June. The combination of stronger employment and moderating wages suggests that labour-market conditions are improving without generating an immediate resurgence in underlying inflation pressures.
- Inflation remains the key concern for the Bank. Headline CPI increased to 3.0% year over year in July, up from 2.8% in June. Much of the acceleration was driven by gasoline, with gasoline prices rising 25.7% year over year. Encouragingly, CPI excluding gasoline remained at 2.2%, while core inflation measures have stayed close to 2%. The Bank therefore continues to distinguish between temporary energy-driven inflation and more persistent underlying price pressures.
- Higher global oil prices have increased the upside risks to Canadian inflation. The continuing conflict in the Middle East, restrictions affecting shipments through the Strait of Hormuz, and elevated refinery margins have kept gasoline and other energy prices high. The Bank is currently looking through some of the direct impact of higher oil prices, but Governor Macklem warned that the longer energy prices remain elevated, the greater the risk that inflation becomes more persistent and spreads into other goods and services.
- US-Canada trade tensions have become a more significant downside risk to growth. New US tariffs on Canadian exports and Canada’s retaliatory measures are creating additional uncertainty for businesses. The Bank estimates that the products directly affected by the new tariffs account for around 5% of Canada’s exports to the United States, limiting the immediate economy-wide impact. Nevertheless, broader uncertainty could cause businesses to delay investment and hiring decisions, potentially slowing the recovery.
- The Bank’s policy stance remains data-dependent going into October. The BoC is balancing two opposing forces: stronger-than-expected economic activity and renewed inflation risks on one side, versus excess economic capacity and trade-related downside risks on the other. With inflation around 3% but underlying inflation closer to 2%, the Bank has so far chosen to remain on hold rather than immediately tighten policy.
- The next meeting is on 28 October 2026.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil is under bearish pressure today as improving Saudi export flows and hopes of US–Iran diplomatic progress outweigh fresh Middle East attacks in the short term. However, the extremely low traffic through the Strait of Hormuz and continuing attacks on energy infrastructure mean the downside could remain vulnerable to sudden geopolitical headlines.
Next 24 Hours Bias
Medium Bullish
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