In a month defined by shifting central bank signals, political turbulence, and surprising market resilience, global currency markets are anything but predictable. From the US dollar’s continued slide to France’s bond market jitters and the Australian dollar’s quiet strength, September’s FX landscape is full of opportunities and risks.
Download the Global FX Outlook for September to unlock expert insights designed to help businesses make informed decisions in an increasingly volatile environment.
US dollar weakens as Fed signals dovish tilt
The US dollar has entered September on the back foot, posting its seventh monthly decline this year. A softer-than-expected August jobs report and cautious remarks from Fed Chair Jerome Powell at Jackson Hole have fueled speculation of a rate cut at the upcoming FOMC meeting. The dollar index fell more than 2% in August, rising against just 12% of its global peers.
Yet, the dollar’s weakness isn’t just about data. Political pressure on the Federal Reserve is intensifying. Governor Lisa Cook’s legal challenge to her dismissal has reignited concerns about Fed independence. While markets remain data-driven for now, the steepening yield curve suggests growing unease about the Fed’s long-term credibility, especially with expectations that Chair Powell could be replaced May 2026.
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Euro resilient despite French political turmoil
Political risk has resurfaced in Europe, with France’s Prime Minister facing a confidence vote over a €44 billion austerity plan. French bond yields surged, widening the spread with German 10-year yields. Despite this, the euro regained over 80% of its July losses, climbing above $1.17 in August. Its resilience suggests limited contagion for now.
However, rising tensions and EU trade concessions to the US could undermine the bloc’s unity and weigh on euro sentiment. The ECB’s policy stance remains data-dependent, with trade negotiations likely to influence its next move. A rate cut by year-end is possible if trade talks falter.
Sterling and Aussie dollar show strength
The British pound rebounded in August, recovering over 2% after a nearly 4% drop in July. GBP/USD stabilized between $1.34 and $1.36, supported by upbeat UK economic indicators and hawkish Bank of England pricing. Sticky food inflation and post-tax hike effects make a November policy pivot more likely than September.
Meanwhile, the Australian dollar trades 2.1% above its 2025 year-to-date average. USD softness and shifting global rate expectations have created a constructive backdrop for modest AUD upside.
Central banks in focus: Fed, ECB, BoE, BoJ
September’s FX outlook hinges on central bank decisions. The Fed faces a two-front dilemma: cutting rates to support the labor market risks stoking inflation and eroding credibility. A “one-and-done” rate cut on September 17 is anticipated, but the path forward remains uncertain. Political pressure and potential new tariffs add further complexity.
The ECB and BoE are expected to pause their easing cycles, while the Bank of Japan continues to grapple with ultra-low rates and a weakening yen that’s fuelling inflation. These diverging paths underscore the importance of localized FX strategies for businesses operating across multiple regions.
Risk appetite remains elevated
Despite the crosscurrents, investor sentiment remains strong. The S&P 500 notched its 25th all-time high of the year, and the VIX continues to trade below its long-term average of 20. Markets are navigating diverging narratives—dovish central banks, political uncertainty, and resilient risk appetite—all of which contribute to FX volatility.
For SMEs and corporates engaged in cross-border trade, understanding FX volatility is crucial. The current environment presents both risks and opportunities:
- Hedging strategies should be revisited in light of potential USD weakness and central bank divergence.
- Pricing models may need adjustment to account for currency fluctuations, especially in EUR, GBP, and AUD.
- Payment timing could impact financial outcomes, particularly around key central bank meetings and political events.
Download the full Global FX Outlook for September to access in-depth analysis, currency forecasts, and strategic insights tailored for international businesses.
