Summary of the week - 17 Oct 25

Interest rate

• US:

  The Federal Reserve cut the federal funds rate by 25bps in September 2025 to a target range of 4.00%–4.25%, marking its first rate reduction since December 2024. The decision was largely expected, though Governor Stephen Miran dissented, preferring a larger 50bps move. Updated projections signaled an additional 75bps of easing through 2026, underscoring the Fed’s gradual pivot toward policy normalization. GDP growth forecasts were upgraded modestly through 2027, while inflation estimates edged slightly higher, reflecting a slower disinflation path. The unemployment rate is expected to stabilize around 4.4%–4.5% in the medium term.

• UK:

  The Bank of England (BoE) maintained its Bank Rate at 4.0%, highlighting progress in disinflation but cautioning that inflation remains above target. UK gilt yields declined to their lowest since July as Chancellor Rachel Reeves signaled potential tax increases and spending restraint ahead of next month’s Autumn Budget to address fiscal imbalances.

• EU:

  The European Central Bank (ECB) left policy rates unchanged for a fourth consecutive meeting — with the deposit facility rate at 2.00%, refinancing rate at 2.15%, and marginal lending rate at 2.40%. Policymakers reiterated that the current stance remains consistent with their 2% inflation target, though underlying price pressures persist, with core inflation steady at 2.4%.

Inflation

• US:

  Consumer spending softened in September, according to data from Bloomberg Second Measure and Bank of America, which showed weaker discretionary purchases for items such as home goods and electronics. This aligns with signs of a cooling consumer environment and easing inflation expectations, ahead of next week’s key CPI release — the first major data print following the government shutdown.

• UK:

  The IMF warned that UK inflation remains among the most persistent in developed markets, forecasting 3.4% in 2025 and 2.5% in 2026 before returning to target by late next year. BoE Governor Andrew Bailey noted that wage growth has started to moderate and the labor market is softening, which should continue to reduce inflationary pressures. However, political critics pointed to persistent cost-of-living strains and fragile consumer sentiment.

• EU:

  The Euro area CPI was confirmed at 2.2% YoY in September, up slightly from 2.0% in prior months and just above the ECB’s mid-point target. Core inflation also edged up to 2.4%, with services inflation remaining elevated at 3.2%, reflecting residual pricing pressures despite a slowdown in food and durable goods prices.

Equity market

• US:

  U.S. equities saw two-sided volatility this week, driven by renewed concerns about regional banks and escalating U.S.–China trade tensions. The S&P 500 briefly slipped 1.2% midweek but rebounded after President Trump suggested his proposed 100% tariffs on Chinese goods would be unsustainable and reaffirmed plans to meet President Xi at the upcoming APEC Summit.

  By Friday, the S&P 500, Dow, and Nasdaq each advanced about 0.5%, led by gains in consumer staples, energy, and financials. Regional banks staged a relief rally after earnings from Zions Bancorp and Western Alliance came in stronger than expected, easing fears of broader credit contagion. For the week, the S&P 500 gained 1.7%, the Dow added 1.6%, and the Nasdaq rose 2.2%.

• UK:

  The FTSE 100 dropped 1.5% as weakness in financials and energy weighed on sentiment. Banking stocks mirrored global sector declines — Barclays and Standard Chartered fell over 5%, while HSBC, NatWest, and Lloyds each lost more than 2%. Oil majors BP and Shell also traded lower amid softer crude prices. On the upside, Pearson rose nearly 3% after reaffirming its full-year guidance, citing stronger enterprise demand for AI-driven learning solutions.

• EU:

  The STOXX 600 and STOXX 50 closed down 0.9% and 0.8%, respectively, but recovered from steeper losses earlier in the week as Trump’s conciliatory comments on tariffs calmed investors. Banks continued to drag — Deutsche Bank (-5.9%), SocGen (-4.6%), and BNP Paribas (-3.7%) led the declines. Conversely, EssilorLuxottica jumped over 12% on record quarterly results, helping offset weakness in industrials.

Fixed Income market

• US:

  Treasury yields whipsawed during the week, with the 10-year yield briefly falling to 3.93% before rebounding above 4.0% as risk appetite stabilized. The bond market remains supported by expectations of further Fed easing, with futures fully pricing in a 25bps rate cut at the upcoming meeting and another by year-end. The ongoing government shutdown, now entering its fourth week, continues to delay official data releases.

• UK:

  UK gilt yields dropped to 4.5%, their lowest level in three months, driven by dovish BoE commentary and global risk aversion. Rising unemployment (now 4.8%) and subdued growth momentum (GDP up just 0.1% in August) reinforced market expectations for a rate cut by February 2026, with some traders anticipating a possible move as early as December 2025.

• EU:

  The German 10-year Bund yield declined to 2.55%, its lowest since June, as safe-haven demand rose amid U.S.–China tensions and renewed banking-sector stress. Investors now expect the ECB to cut rates by mid-2026, with terminal rates projected near 1.8% by end-2026.

Commodities

• Gold:

  Gold prices surged to new records above $4,300/oz, supported by safe-haven demand amid renewed U.S.–China tensions, a lingering U.S. government shutdown, and growing market bets on aggressive global rate cuts. The metal is up over 60% year-to-date, fueled by central bank buying and investor positioning against currency debasement and fiscal instability.

• Oil:

  WTI crude oil settled at $57.50/bbl, marking its third consecutive weekly decline and a nearly 3% loss for the week. Oversupply concerns, record U.S. production, and rising inventories continue to pressure prices despite diplomatic progress between Trump and Putin over Ukraine. Volatility around the $60 level is likely to persist as demand softens into 2026.

FX

• U.S. Dollar finished the week at 98.4, rebounding modestly from a two-month low as trade tensions cooled. Despite the uptick, the dollar remains on track for a 0.5% weekly loss due to the prolonged government shutdown and dovish Fed commentary. Fed officials Christopher Waller and Stephen Miran reiterated support for additional rate cuts to safeguard the labor market.

• Euro:

  The euro climbed to $1.17, its strongest level since early October, bolstered by improved political stability in France after Prime Minister Lecornu survived two no-confidence votes. The softer dollar and easing fiscal anxiety in Europe added to the euro’s momentum.

• British Pound:

  The pound slipped to $1.33, its weakest level in 10 weeks, as traders braced for potential tax hikes and spending cuts in the upcoming UK budget. BoE Chief Economist Huw Pill reiterated a cautious stance, emphasizing the need to prioritize inflation control.

• Japanese Yen & Bitcoin:

  The yen weakened slightly on expectations the Bank of Japan will maintain its 0.5% policy rate, while Bitcoin fell 15% from its recent peak — a reminder of its volatility even amid heightened interest in the “debasement trade”, where investors hedge against fiat depreciation through gold and crypto assets.

Source: CNBC, Bloomberg, FTnews, TradingEconomics and Reuters.

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