KUWAIT: This week saw pivotal key central bank decisions, political developments, and key economic data releases, driving market movements. In North America, the Federal Reserve cut the federal funds rate by 25bps to 4.00-4.25 percent, marking its first reduction this year after five consecutive holds. The 11-1 decision reflected labor market softness, with unemployment rising to 4.3 percent and job growth slowing below replacement levels, whilst PCE price inflation held at 2.6 percent in July. Updated “dot plot” projections signaled two further quarter-point cuts in 2025. DXY closed the week at 97.644.
The Bank of Canada also cut its policy rate by 25bps to 2.50 percent following a -1.6 percent annualized contraction in Q2 GDP and with unemployment at 7.1 percent. Markets now expect a further cut by December, with USD/CAD stable near 1.38. In Europe, Germany’s ZEW survey showed sentiment improving to 37.3 but current conditions weakening sharply to -76.4, reflecting continued fragility. Meanwhile, the Bank of England held rates at 4 percent (7-2 vote) as inflation remains elevated at 3.8 percent and wage growth slowed to 4.8 percent YoY.
Quantitative tightening will be reduced to GBP 70B over 12 months from GBP 100B, with adjustments skewed to protect the gilt long end. The United Kingdom also secured GBP 250 billion ($338 billion) in US investment pledges during a state visit, though tariff disputes persist. EUR/USD and GBP/USD closed the week at 1.1745 and 1.3471 respectively. In Asia-Pacific, Chinese data weakened across industrial output (+5.2 percent), retail sales (+3.4 percent), and fixed-asset investment (+0.5 percent), whilst unemployment edged up to 5.3 percent, underscoring downside risks to the 5 percent growth target.
USD/CNY closed the week at 7.1182. Australia’s unemployment rate held at 4.2 percent in August, supporting market expectations for the RBA to keep the cash rate at 3.6 percent later this month. New Zealand GDP contracted -0.9 percent in Q2, with unemployment at 5.2 percent, increasing speculation of further RBNZ easing in October. AUD/USD ended the week at 0.6593. Meanwhile, the Bank of Japan held rates at 0.5 percent, and announced ETF sales of JPY 620B annually. USD/JPY closed the week at 147.97. US equities advanced as the yield curve steepened modestly, with the 2s10s and 5s30s widening by 5bps and 2bps respectively. Brent crude settled at $66.68 per barrel, whilst spot gold finished the week higher at $3685.30 per ounce.
Federal Reserve cuts rates by 25bps
The Federal Reserve lowered the federal funds rate by 25bps to a target range of 4 percent to 4.25 percent, its first reduction this year after five consecutive holds. The decision, supported 11-1, reflected concerns over labor market softness, with unemployment rising to 4.3 percent, the highest in nearly four years, and job creation falling below the break-even pace. Chair Jerome Powell emphasized that the move was a “risk-management cut” whilst reiterating caution given inflationary pressures, with the Fed’s preferred gauge, Personal Consumption Expenditures (PCE), at 2.6 percent YoY in July. Updated “dot plot” projections signaled two further quarter-point cuts in 2025, one more than projected in June, alongside modestly stronger growth forecasts. Market reaction to Powell’s comments was mixed: the US dollar firmed, two-year Treasury yields rose 5bps to 3.55 percent, and 10-year yields climbed 6bps to 4.09 percent on the day. DXY closed the week at 97.644.
President Donald Trump has requested the US Supreme Court to allow the removal of Federal Reserve Governor Lisa Cook amidst unresolved allegations of mortgage fraud, following a lower court ruling that permitted her to remain in office. Cook participated in the Fed’s September meeting, where policymakers approved a 25bps rate cut, with only one dissent. The Justice Department argues the removal is “for cause” whilst courts have limited oversight under the Federal Reserve Act. Separately, Trump has proposed reducing corporate earnings reporting from quarterly to semi-annual, with the SEC prioritizing review of the initiative. The move could affect transparency standards across US markets, investor information flow, corporate focus on long-term strategy, and market volatility. Both actions underscore significant political intervention in financial and regulatory frameworks.
US jobless claims fall
Weekly initial jobless claims unexpectedly fell 33K to 231K tempering expectations for additional Federal Reserve rate cuts this year. Whilst this reversed the prior week’s surge, labor market conditions have softened with decreases in both the demand for and supply of workers. Separately, retail sales data came in at+0.6 percent MoM in August, exceeding forecasts, with sales ex-autos up 0.7 percent, reflecting sustained consumer spending across nine of 13 categories, including online retail, clothing, and sporting goods. Meanwhile, the New York Empire State Manufacturing Index plunged to -8.70, sharply below the 4.30 forecast and down from 11.90 previously, indicating a contraction in regional manufacturing activity. The divergence between solid consumption and weakening manufacturing highlights uneven economic momentum.
Market participants are monitoring these metrics, which influence the trajectory of Fed policy, Treasury yields, and the US dollar, given the implications for growth, inflation, and employment stability.
BoC cuts rate to 2.5% as Q2 GDP
The Bank of Canada reduced its benchmark overnight rate by 25bps to 2.5 percent in September, its first cut since March, citing mounting growth and employment pressures amidst US tariffs. Policymakers highlighted a contraction in Q2 GDP of -1.6 percent annualized, led by declines in exports and business investment, alongside cumulative job losses of more than 106K in July and August. The unemployment rate rose to 7.1 percent, its highest in nearly four years, with hiring weakness broadening beyond trade-sensitive sectors. Core inflation eased to 3.05 percent in August from 3.1 percent, whilst headline CPI rose 1.9 percent YoY, supported by fuel prices. Retail sales rebounded 1 percent in August after a 0.8 percent decline in July, though volume remained soft and underlying consumption trends appear lackluster. Officials offered limited forward guidance, signaling a cautious approach as the policy rate fell below the estimated neutral range of 2.25 percent-3.25 percent. Market pricing implies around 50 percent probability of another cut in October. USD/CAD closed the week at 1.3785.
BoE holds rates at 4%
The Bank of England (BoE) maintained the Bank Rate at 4 percent in a 7-2 vote, with two members supporting a 25bps reduction. Headline CPI remained at 3.8 percent YoY in August, nearly double the 2 percent target, whilst private sector wage growth slowed to 4.7 percent and total wage growth to 4.8 percent YoY, the lowest in three years but still above levels consistent with target inflation. Labour market conditions showed signs of stabilization, with unemployment steady at 4.7 percent and payroll declines moderating. Retail sales rose 0.5 percent MoM in August, marking a third consecutive monthly increase. The BoE also reduced its quantitative tightening program, lowering planned gilt sales to GBP 70B over 12 months from GBP 100B, with a shift away from long-dated issuance to support market functioning. GBP/USD closed the week at 1.3471.
US President Donald Trump’s state visit to the United Kingdom concluded with symbolic unity but limited policy progress. Prime Minister Keir Starmer emphasized the “unique bond” between the two nations, whilst both leaders underscored cooperation in technology and energy. A central outcome was the announcement of GBP 250B ($338 billion) in bilateral investment pledges from US firms including Microsoft, Nvidia, and Blackstone, highlighting technology infrastructure as a growth driver. However, no resolution was reached on US tariffs affecting UK steel and Scotch whisky exports, which remain a structural impediment to trade relations. On foreign policy, divergences persisted over Palestine and Ukraine, although rhetoric remained conciliatory. Overall, the visit reinforced transatlantic ties but left material trade and policy issues unresolved, with markets attentive to future negotiations.
German investor sentiment improved in September, with the ZEW economic expectations index rising to 37.3 from 34.7 in August, significantly above the consensus forecast of 26.3. The assessment of current economic conditions, however, worsened sharply, falling to -76.4 from -68.6, underscoring continued weakness in Europe’s largest economy. The divergence reflects cautious optimism among financial market experts despite Germany’s underperformance relative to G7 peers, having recorded no growth over the past two years. Structural challenges persist, including elevated uncertainty surrounding US tariff policy and domestic reform implementation. Economists highlighted the risk that sentiment improvements may not translate into corporate activity unless conditions stabilize, though the uptick in expectations provides some scope for a gradual recovery in coming quarters. EUR/USD closed the week at 1.1745.
Asia-Pacific
China’s economy decelerated further in August 2025, underscoring rising expectations for additional policy support. Industrial output grew 5.2 percent YoY, the slowest expansion since August 2024, whilst retail sales rose 3.4 percent, easing from 3.7 percent in July. Fixed-asset investment expanded only 0.5 percent in the first eight months of the year, the weakest pace outside 2020. Export growth slowed to 4.4 percent, whilst the surveyed urban jobless rate edged higher to 5.3 percent. Credit growth also weakened, registering its first monthly slowdown of the year, whilst investment contracted across key industries including pharmaceuticals, machinery, and raw chemicals. The broad-based slowdown, compounded by weakening housing and infrastructure investment, heightens risks to meeting the government’s 5 percent growth target and increases pressure on policymakers to calibrate further fiscal and monetary easing in coming months. USD/CNY closed the week at 7.1182.
BOJ holds rate at 0.5%
The Bank of Japan (BoJ) maintained its policy rate at 0.5 percent in a 7-2 decision, with two board members dissenting in favor of a 25bps hike, marking the strongest push for tighter policy since Governor Kazuo Ueda took office in 2023. Simultaneously, the BOJ unveiled plans to gradually unwind its exchange-traded fund (ETF) holdings, valued at over JPY 75T ($508 billion) at market prices, by selling around JPY 620B annually – a process projected to take more than a century at the stated pace. The move, aimed at reducing the BOJ’s market footprint without destabilizing conditions, follows the end of its ETF purchases last year. Markets reacted with equities reversing earlier gains, the Nikkei-225 closing down 0.6 percent, bond yields rising, and yen gains fading against the US dollar. USD/JPY closed the week at 147.97.
Australia’s labor market remained tight in August, with the unemployment rate steady at 4.2 percent, in line with forecasts, despite a net decline of 5.4K jobs. Full-time employment fell by 40.9K whilst part-time roles increased by 35.5K, and the participation rate edged down to 66.8 percent from 67.0 percent. Underemployment eased to 5.7 percent, whilst the employment-to-population ratio declined to 64.0 percent. Hours worked contracted 0.4 percent as fewer full-time hours were recorded. The data reinforce the Reserve Bank of Australia’s cautious stance on policy easing, supporting market expectations for the RBA to maintain the cash rate at 3.6 percent in September, with swap markets now shifting toward a fourth reduction in November. Elevated global uncertainty, including trade tensions and slowing Chinese demand, continues to influence the RBA’s outlook. AUD/USD closed the week at 0.6593.
New Zealand’s economy contracted 0.9 percent in the second quarter, exceeding the expected 0.3 percent decline, following a revised 0.9 percent expansion in Q1, according to Statistics New Zealand. Annual GDP fell 0.6 percent, whilst GDP per capita dropped 1.1 percent QoQ. The downturn was driven by a 1.8 percent fall in construction and a 3.5 percent decline in manufacturing, with exports and investment also retreating. Household spending increased 0.4 percent, down from 1.4 percent in Q1, amidst rising cost-of-living pressures. Unemployment rose to a five-year high of 5.2 percent, compounded by subdued consumer confidence and reduced immigration. The Reserve Bank of New Zealand, which has lowered the Official Cash Rate by 250bps since August 2024, faces mounting pressure to deliver further easing, with market expectations now factoring in a potential 50bps cut in October. NZD/USD closed the week at 0.5860.
Kuwait
USD/KWD closed last week at 0.30455.