The third quarter of 2025 marks a pivotal shift in global FX markets, with the US dollar (USD) relinquishing its earlier resilience. After holding firm in July, the greenback weakened sharply in August as markets recalibrated expectations for Federal Reserve policy. Chair Jerome Powell’s remarks at Jackson Hole signalled greater concern over labour market risks and hinted at the onset of an easing cycle. Coupled with softer US economic data and renewed doubts about Fed independence, this triggered a broad USD sell-off.
European currencies were the main beneficiaries: the euro (EUR) withstood political turbulence in France, while sterling (GBP) gained on a hawkish Bank of England (BoE) surprise and strong UK data. Yet, both rallies remain tentative, constrained by technical resistance and lingering domestic uncertainties.
As September unfolds, market focus shifts from “Powell’s pivot” to “data dependency.” With an 83% probability priced for a 25bp Fed cut at the September FOMC, the debate now centers on the path of easing: gradual, aggressive, or one-off. The direction of USD through year-end hinges on incoming data and Fed guidance.
July 2025 – Temporary Resilience
The USD began July on firmer footing. Stronger-than-expected June payrolls (unemployment 4.1% vs. 4.3% expected) reduced immediate Fed cut bets, while renewed global trade tensions bolstered safe-haven demand. Fed minutes struck a cautious but hawkish tone, with some officials suggesting further hikes remained on the table.
August 2025 – The Powell Pivot
Momentum shifted decisively in August:
The DXY index fell over 2% in August, its seventh monthly decline of 2025, though bears failed to breach the key 96.37 low.
September 2025 Outlook: Data in Control
The upcoming FOMC meeting (Sept 17) and high-frequency data releases will set the tone.
House view: three Fed cuts in 2025 remain likely, underpinned by US fiscal risks, rising deficits, and gradual erosion of USD dominance in reserve diversification.
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EUR/USD – Resilience Amid Political Risks
GBP/USD – Sterling Outperforms
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EUR/USD – Balancing Acts
GBP/USD – Testing Resilience
September’s FX landscape is defined by the handoff from Fed rhetoric to data. While the USD faces structural headwinds, neither EUR nor GBP can mount a sustained breakout without strong domestic catalysts. Range trading remains the prudent stance, with a mild USD-bearish bias prevailing. Volatility around key data and central bank events will be high, requiring nimble positioning as markets transition from anticipation to execution of the new monetary cycle.
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