August showed just how much uncertainty markets are willing to tolerate. Despite geopolitical tensions, tariff escalation, oil price swings, and growing debt concerns, FX volatility remained subdued. That changed late in the month as questions around US fiscal sustainability and policy credibility weakened the dollar and revived volatility.
For businesses involved in international trade, September could prove pivotal as markets reassess the balance between economic resilience and uncertainty.
Download our Global FX Outlook for September now.
Why the US dollar weakened in August
A combination of softer US economic data and reduced expectations of further Federal Reserve tightening encouraged investors to embrace risk throughout August. Global equities reached fresh record highs, carry trades remained popular, and higher-beta currencies outperformed.
However, sentiment shifted when the US Treasury announced an expansion of its long-dated debt buyback program. While the move was designed to support market functioning and liquidity, many investors interpreted it as a signal that policymakers are becoming increasingly concerned about rising borrowing costs.
The result was renewed scrutiny of US fiscal policy and a weaker dollar. As higher government debt levels, elevated yields, and ongoing Treasury issuance remain in focus, markets are increasingly questioning whether long-term fiscal challenges are being adequately addressed.
Key FX market themes for September 2026
Three key themes are likely to influence currency markets in September.
1. Pressure on policy credibility
Markets continue to scrutinize new Federal Reserve Chair, Kevin Warsh and his communication approach. Investors remain focused on whether the Federal Reserve can maintain confidence in its commitment to controlling inflation. Future policy decisions and messaging may play an important role in determining the dollar’s direction.
2. Geopolitical and trade tensions
Middle East developments continue to evolve primarily through economic and trade measures rather than direct military action. At the same time, ongoing uncertainties surrounding US-China trade relations and regional shipping routes remain important considerations for global markets and supply chains.
3. Dollar debasement concerns
Talk of potential dollar debasement resurfaced after the expansion of Treasury buybacks. The program aims to ease pressure on long-term yields, but it has also fueled debate about the long-term implications of rising debt levels and persistent inflation. So far, the dollar has been the primary casualty, weakening against major currencies.
Major currency moves to watch
The decline in the US dollar was one of the defining market developments of August. Softer economic data, reduced expectations of further rate hikes, and concerns about policy credibility all contributed to weakness in the greenback.
The euro benefited from this backdrop, with EUR/USD regaining key technical levels, although much of the move reflected dollar weakness rather than euro-specific strength.
Sterling also advanced, reaching a six-month high against the dollar as the broader USD decline supported GBP/USD.
Meanwhile, the Canadian dollar faced a more complicated environment. Although Canada’s economic data remained relatively firm, the breakdown in US-Canada trade negotiations introduced new uncertainty and increased tariff-related risks.
Why the Canadian dollar deserves attention
The Canadian dollar offers a clear example of how economic fundamentals and trade policy can pull currencies in different directions.
Strong employment, manufacturing, trade, and inflation data helped support CAD earlier in August. However, the collapse of trade negotiations and the introduction of new tariffs prompted markets to reassess Canada’s growth outlook and exposure to prolonged disruption.
Looking ahead, the path for USD/CAD will depend heavily on whether trade tensions ease through negotiation or intensify further. While improving Canadian economic conditions may continue to support the currency, ongoing uncertainty surrounding tariffs could limit its recovery.
Download FX trends for September 2026
With fiscal sustainability concerns, central bank credibility, trade disputes, and geopolitical developments all competing for market attention, businesses face an increasingly complex FX environment.
Download our full September FX Outlook for deeper analysis of the global trends shaping currency markets, detailed coverage of major currencies, and insights designed to help businesses better navigate the risks and opportunities associated with international trade and cross-border payments.
