September 2025 saw the US dollar primarily strengthen against its major peers, with the broader dollar index having gained ground so far (as of September 29), although it has retreated in today’s session due to worries of a US government shutdown.
The Federal Reserve’s recent rate cut in September, alongside comments from Chair Powell, has kept markets focused firmly on the potential of whether there will or will not be more cuts this year.
Meanwhile, the British pound has been sensitive to domestic fiscal concerns. The euro showed modest stability, though news of production cuts in the German auto industry weighed on sentiment. The Japanese yen saw its own volatility, with a hawkish split at the Bank of Japan’s (BOJ) latest meeting increasing the possibility of an October rate hike.
Here’s what to watch in October:
- Concerns of a Potential US Government Shutdown: The most immediate risk is the potential for a US government shutdown, with funding for federal operations set to expire on October 1st. A shutdown, even a partial one, could disrupt key economic data releases and dampen confidence, adding significant volatility to the USD and global markets.
- Federal Reserve October Meeting: With markets already pricing in a high probability of a further rate cut at the October 29th FOMC meeting, attention will be on the rhetoric of Fed officials.
- UK Fiscal and Monetary Policy: Following the surprise August rate cut and with the Autumn Budget due in November, UK fiscal concerns remain a major headwind for the GBP.
US Dollar (USD)
The US dollar mostly strengthened throughout September, driven by a resilient US economy, but ceded some ground on September 29 as the risk of a US government shutdown intensified.
This political uncertainty, which historically can delay economic data and curb GDP, has weighed on investor confidence in the dollar’s stability.
On the monetary side, the Fed’s recent actions and the comments from Chair Powell have anchored market expectations for further easing. Markets have assigned a high probability to an October rate cut. Analysts believe that while this dovish outlook caps the dollar’s upside, a prolonged shutdown could cause temporary volatility.
Scotiabank suggests a weak dollar phase is in keeping with the US administration’s mercantilist policy and large fiscal shortfalls.
Key Levels:
- EUR/USD: Higher – 1.1825, Lower – 1.1600
- GBP/USD: Higher – 1.3581, Lower – 1.3330
- USD/JPY: Higher – 150.00, Lower – 146.70
Euro (EUR)
The euro’s stability in September was modest, seeing a slight rise against the dollar late in the month, despite reports of production cuts in the key German auto sector.
The EUR/USD is trading around the 1.1725 level (at the time of writing), as the single currency continues to be discussed as a potential alternative safe haven to the volatile dollar.
deVere has previously argued that the euro is offering a “clearer, more credible alternative” to the dollar, and if US volatility increases, particularly from a government shutdown, the euro could strengthen.
However, recent weak German IFO readings for September reinforce concerns that the Eurozone economy is set for another year of stagnation. Rabobank also highlighted that geopolitical risk factors could undermine the euro.
Key Levels:
- EUR/USD: Higher – 1.1825, Lower – 1.1600
- EUR/GBP: Higher – 0.8764, Lower – 0.8600
British Pound (GBP)
The British pound was volatile in September. After hitting a high of over 1.37 in mid-September, it dipped before recovering to around 1.3425 against the dollar.
The BoE’s August rate cut to 4% was followed by a subsequent vote in September to hold Bank Rate at 4%. However, UK fiscal concerns remain a major headwind for the pound, with analysts divided on its long-term outlook.
Standard Chartered warns that a reliance on tax hikes in the upcoming Autumn Budget could weigh on growth, capping gains, despite supportive interest rate differentials.
On a technical level, the GBP/USD is sitting at a key support on the monthly chart. Scotiabank is more optimistic, citing the BoE’s cautiously neutral stance. For October, the pound’s direction will depend heavily on whether the current fiscal concerns abate.
Key Levels:
- GBP/USD: Higher – 1.3581, Lower – 1.3330
- EUR/GBP: Higher – 0.8764, Lower – 0.8600
Japanese Yen (JPY)
The Japanese yen experienced notable volatility in September. After initially declining, the USD/JPY began to rise from September 17. However, the last two sessions have seen a sharp retreat.
The market remains uneasy about the pair’s recent stability, as not all upcoming risks, including the US shutdown and Japan’s LDP leadership election on October 4th, appear to be fully priced in.
Critically, the BOJ’s latest September meeting saw two board members dissent in favour of an immediate rate hike, a split that was widely seen as a nudge to Governor Ueda to move faster.
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