As we enter the final quarter of 2025, global financial markets are showing signs of greater stability, but don’t mistake calm for certainty. Volatility sits beneath the surface, driven by shifting policy signals, resilient economic data, and diverging central bank strategies. Understanding these dynamics is more critical than ever for businesses engaged in cross-border trade.
Download the Global FX Outlook for October for timely insights and forecasts to help your business optimize your international payments strategy in the month ahead.
A rebounding USD and shifting sentiment
After hitting a three-year low in September, the USD staged a sharp rebound. Strong domestic data and a more cautious Federal Reserve have cooled expectations for further rate cuts, reviving a “good news is bad news” dynamic. In this environment, positive economic surprises can paradoxically trigger risk-off moves, as markets recalibrate their expectations for monetary easing.
This shift has had ripple effects across major currencies:
- EUR: Briefly surged to a four-year high against the USD before retreating, underscoring its sensitivity to US data and Fed policy.
- GBP: Dropped nearly 3% from recent highs, as rising UK yields were interpreted as stress signals rather than opportunities.
- AUD: Climbed to a near one-year high before hitting resistance, reflecting waning global risk appetite.
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From panic to patience, but risks remain
A notable change since peaking in April has been the decline in policy uncertainty. Markets are now reacting more to economic data than headlines, a welcome shift from the sentiment-driven swings that dominated earlier in the year. However, this newfound patience is fragile. Any fresh shocks—geopolitical, economic, or otherwise—could quickly reignite volatility.
Diverging central bank paths
The once-synchronized global easing cycle is now fragmenting. The Fed and Bank of Canada cut rates in September, citing labor market concerns, while the ECB held steady and signaled an end to its cutting phase. Meanwhile, the Bank of England and Reserve Bank of Australia remain cautious amid persistent inflation, and the Bank of Japan continues to chart its own course. This divergence sets the stage for two-way FX volatility, making it harder for businesses to predict currency movements.
Has the USD found its floor?
Since August, we’ve argued that further USD weakness is less likely. This year’s depreciation stems more from hedging and repositioning than asset dumping. While consensus expects continued decline, factors like resilient U.S. growth, fiscal deficit support, a cautious Fed, and priced-in easing complicate that view. The current path echoes Trump’s first term: early weakness, then rebound—though now amid rate cut prospects. Ultimately, the dollar’s direction hinges more on real economic data than on speculative Fed expectations.
Ready to make smarter FX decisions this quarter?
Global FX Outlook for October goes beyond the headlines to unpack the trends, risks, and opportunities shaping currency markets right now.
Download the full report to access in-depth analysis, currency forecasts, and actionable insights tailored for businesses navigating global markets.
