Monthly Currency Report Summary – September 2025
Overview: September 2025 was a month marked by heightened volatility, shifting monetary policy expectations, and renewed global political uncertainty. Traders across the foreign exchange (FX) market faced a series of contrasting signals as the Federal Reserve, Bank of England (BoE), and European Central Bank (ECB) attempted to balance inflation pressures, growth concerns, and geopolitical disruptions. The overarching narrative for the month was one of correction and consolidation, following the aggressive risk positioning seen during the summer months.
The US Dollar regained strength mid-month following resilient economic data, while the British Pound struggled under renewed fiscal and political scrutiny. The Euro, although initially supported by improving data from Germany, ultimately succumbed to cross-market pressure as safe-haven flows supported the Greenback. Across the board, traders juggled conflicting indicators — US growth surprised to the upside, while the UK’s economic outlook darkened amid fiscal concerns and the looming autumn budget. As a result, GBP/USD saw its most volatile trading range in months, EUR/USD experienced sharp corrections, and GBP/EUR moved erratically as Sterling sentiment wavered.
GBP/USD Performance:
September began with Sterling attempting to regain footing above 1.3550, buoyed by short-lived optimism surrounding the UK economy and speculation of further rate cuts from the Federal Reserve. However, as the month progressed, the pair failed to sustain gains, slipping steadily towards the 1.3400 handle and later below 1.3350. Despite occasional rebounds spurred by weaker US data or dovish Fed rhetoric, each rally was short-lived.
The GBP/USD pair encountered a confluence of headwinds: persistent UK bond market volatility, softening consumer sentiment, and growing speculation that fiscal constraints would limit the Labour government’s ability to stimulate growth. The reshuffling of Starmer’s cabinet early in the month and a sharp rise in long-term gilt yields compounded the market’s unease, driving investors away from Sterling. The UK’s 27-year high in borrowing costs also added to investor anxiety, fuelling capital outflows into safer assets.
Mid-month, the Federal Reserve’s 25-basis-point rate cut initially weakened the USD, sending the Cable temporarily above 1.3700 — its highest level since July. However, the move was quickly reversed as traders interpreted the Fed’s commentary as a signal of policy stability rather than an easing cycle. Subsequent strong US housing and retail data revived Greenback demand, pulling GBP/USD back below 1.3500.
Technically, the pair traded below both its 20-day and 200-day moving averages, establishing a bearish structure that persisted into the month’s final week. RSI readings consistently hovered near the oversold boundary, suggesting momentum fatigue but no imminent reversal. The 1.3400–1.3450 zone provided short-term support through multiple retests, though analysts warned that any sustained break below 1.3300 could open the door to deeper declines heading into Q4.
From a fundamental standpoint, the BoE’s decision to hold rates amid rising inflation signalled a cautious approach, further undermining Sterling. Governor Andrew Bailey’s dovish tone about the UK’s inflation trajectory and labour market fragility reinforced expectations that the next move could be a cut before year-end. Combined with the Fed’s comparatively resilient outlook, this divergence cemented GBP/USD’s downtrend through the latter half of September.
By month-end, the Cable hovered near 1.3450, marking a decline of approximately 1.8% for September. Market sentiment remained fragile, with traders hesitant to re-establish long positions ahead of October’s US employment data and looming UK fiscal announcements.
EUR/USD Performance:
The EUR/USD pair opened September on a positive note, trading above 1.1700, supported by a weaker Dollar and improving Eurozone economic indicators. Early in the month, upbeat German industrial production and PMI data temporarily buoyed the Euro, pushing the pair towards 1.1800 — a level not seen since early July. However, this momentum proved fleeting as global risk sentiment turned risk-off mid-month.
The Federal Reserve’s rate decision catalysed volatility. Following the Fed’s modest 25-basis-point cut, the EUR/USD briefly breached 1.1900 — its highest level in four years — before retreating sharply as traders adjusted their expectations for future policy divergence. With the ECB maintaining its cautious tone and offering no clear indication of additional stimulus, the pair came under renewed selling pressure.
Political instability within the Eurozone further dampened sentiment. The downgrade of France’s credit rating mid-month reignited concerns about fiscal unity within the bloc, while mixed retail and inflation data from Germany weighed on confidence. The Euro’s rally faded as markets reassessed the region’s growth prospects in the face of declining export performance and weak domestic demand.
Technically, the pair oscillated between 1.1650 and 1.1800, struggling to establish a clear directional bias. The RSI showed periodic overbought conditions during mid-month rallies, followed by deep corrections. The 20-day moving average acted as a pivot level, repeatedly tested but not convincingly broken in either direction. By late September, EUR/USD settled around 1.1730, posting modest monthly gains of 0.3%, supported primarily by end-of-month USD profit-taking.
From a macroeconomic lens, the Eurozone’s outlook remained constrained by sluggish growth and limited fiscal flexibility. ECB President Christine Lagarde reiterated the Bank’s commitment to data dependency, but traders interpreted her comments as a sign of hesitation rather than strategic direction. As a result, the Euro’s ability to sustain upside momentum remained questionable heading into Q4.
GBP/EUR Performance:
Throughout September, the GBP/EUR pair traded with significant volatility but maintained an overall bearish bias as Sterling underperformed relative to the Euro. Starting the month near 1.1550, the pair struggled to gain traction amid concerns about UK fiscal stability and slowing economic growth. Repeated tests of the 1.1450 support zone highlighted the market’s reluctance to back the Pound.
Midway through the month, the pair briefly climbed above 1.1580, buoyed by GBP/USD corrections and modest Sterling inflows from risk-on participants. However, the move lacked conviction and quickly reversed as both UK macro indicators and BoE communications undermined confidence. A dovish tone from the BoE contrasted sharply with the ECB’s cautious neutrality, creating a widening divergence that favoured the Euro.
By late September, GBP/EUR retreated towards 1.1450, testing the lower bound of its multi-month range. Technical indicators suggested the pair was oversold, but traders remained wary of premature positioning. The RSI flirted with the oversold threshold several times during the second half of the month, signalling potential short-term corrections that failed to materialise amid sustained Sterling weakness.
Cross-market dynamics also played a role. While the Euro’s performance against the Dollar fluctuated, its relative stability compared to the Pound lent it safe-haven appeal within Europe. With German and French business data outperforming UK equivalents, traders favoured the Euro for regional diversification. Consequently, GBP/EUR closed the month around 1.1460, marking a decline of approximately 0.8%.
Key Market Influences in September 2025:
- Central Bank Divergence:
The month underscored growing policy divergence among major central banks. The Federal Reserve’s limited 25-basis-point cut was perceived as a signal of confidence in the US economy, while the BoE’s dovish rhetoric suggested growing concern about the UK’s fiscal health and consumer demand. Meanwhile, the ECB maintained its wait-and-see approach, providing little guidance but benefiting from relative stability. This divergence drove much of the month’s FX volatility. - Political and Fiscal Developments:
In the UK, fiscal uncertainty continued to weigh heavily on Sterling. Market reaction to Prime Minister Keir Starmer’s cabinet reshuffle was muted, while rising gilt yields reignited concerns about debt sustainability. Across the Atlantic, looming fears of a US government shutdown and debates over service funding created short-term risk aversion, supporting the USD. In Europe, France’s credit downgrade added another layer of instability, undermining regional investor confidence. - Macroeconomic Data:
US economic data surprised to the upside throughout the month, particularly in housing and consumer spending, strengthening the Dollar. In contrast, UK retail and manufacturing data disappointed, reinforcing the bearish sentiment for Sterling. German and French PMI releases offered mixed signals, highlighting uneven growth across the Eurozone. - Geopolitical Tensions:
Although less dominant than in previous months, geopolitical factors such as Trump’s renewed trade measures and escalating rhetoric around Chinese tariffs influenced sentiment intermittently. Traders also monitored Middle Eastern developments and Eastern European border tensions, which intermittently spurred safe-haven demand for the USD.
Market Outlook for October 2025:
As Q4 begins, FX markets enter a crucial phase shaped by monetary policy expectations and political developments.
- GBP/USD: The pair remains vulnerable to downside risk, with traders eyeing 1.3300 as the next key support level. While technical indicators suggest that the sell-off may be nearing exhaustion, any dovish move by the BoE in early October could accelerate Sterling’s decline. Conversely, weaker-than-expected US data could offer short-term relief, potentially pushing the pair back towards 1.3550–1.3600.
- EUR/USD: The pair is likely to remain range-bound between 1.1650 and 1.1800, with upside capped by persistent USD strength. The ECB’s October communications will be pivotal; any hint of policy adjustment or fiscal coordination could lend near-term support to the Euro.
- GBP/EUR: This cross may continue to consolidate near 1.1450, though Sterling’s fate largely depends on domestic fiscal headlines and upcoming budget previews. The pair could see modest upside towards 1.1550 if UK data stabilises and BoE guidance remains cautious but not alarmist.
Broader sentiment will hinge on upcoming US employment and inflation reports, which will influence expectations for Fed policy in December. Traders also anticipate preliminary signals from both the BoE and ECB regarding 2026 interest rate trajectories.
Conclusion:
September 2025 proved to be a pivotal month for the FX markets, characterised by corrections, renewed risk aversion, and shifting policy expectations. The US Dollar reasserted dominance, benefiting from economic resilience and safe-haven demand, while the British Pound struggled under political and fiscal uncertainty. The Euro showed intermittent strength but remained constrained by internal divergences within the Eurozone.
As markets transition into the final quarter of the year, traders remain cautious. The combination of slowing global growth, uneven inflation pressures, and policy ambiguity across central banks suggests continued volatility. Until the BoE, Fed, and ECB provide clearer forward guidance, FX markets are likely to remain range-bound with a bias toward USD strength.