Posts by:
As a foreign exchange dealer attuned to the Fed’s every whisper, November 2025 illustrated how quickly the USD’s momentum can reverse. The Dollar Index (DXY) slipped from 100.33 to 99.43 as early-month strength was undone by dovish signals and an aggressive repricing of December rate-cut expectations. Most major currencies rebounded from October’s USD surge, with the notable exception of the JPY, which weakened 1.36% to 156.13 per USD amid persistent yield differentials.
The USD extended its dominance in October, rising against all major currencies as markets recalibrated expectations for global growth and monetary policy....
As September draws to a close, the foreign exchange markets have navigated a turbulent landscape shaped by diverging central bank policies, rising bond yields, and mounting U.S. fiscal pressures. The U.S. dollar (DXY) has logged a steep year-to-date decline of more than 10.7% against the DXY basket—the weakest start since 1986—but managed a modest 0.5% gain this month despite the Federal Reserve restarting its rate-cutting cycle. The index has stabilized around 102.50, its softest level since mid-2024. This resilience contrasts with the 40th anniversary of the Plaza Accord, when coordinated intervention reversed USD strength, underscoring that today’s volatility is shaped not by cooperation but by fragmentation—tariffs, shifting safe-haven flows, and looming U.S. fiscal stress, including the threat of a government shutdown on October 1.
September 2025: Key Market Drivers
September’s central bank decisions highlighted a widening policy gap, amplifying USD headwinds. The Federal Reserve cut rates by 25 basis points on September 18, lowering the target range to 4.75–5.00% as unemployment held at 4.3% and August payrolls added just 22,000 versus 75,000 expected. Nine of 19 officials still see room for additional cuts this year, while six expect none, leaving markets pricing roughly 39 bps of easing by December. Core inflation, at 3.1% y/y, remains sticky. By contrast, other central banks are moving more cautiously: the Bank of Canada eased 25 bps to 2.50% on September 17, the ECB stayed on hold at 3.50%, and the Bank of Japan may hike to 0.75% before year-end. This divergence—Fed easing while peers stabilize—reinforces downward pressure on the USD as yield differentials shift. Meanwhile, the People’s Bank of China cut its one-year lending rate by 20 bps to 2.0%, injecting further liquidity into global markets.
Despite Fed easing, long-end yields climbed. Japan’s 20-year yield reached 2.685%, the highest since 1999, while U.S. 30-year Treasuries rose to 4.75% by September 25 amid $200 billion in new issuance. Washington’s “One Big Beautiful Bill” is projected to add $2.5–5.2 trillion to debt over the next decade, while $7.8 trillion of Treasuries must be rolled in 2025 at higher rates. This rollover could increase annual interest costs by $150–200 billion. A potential government shutdown on October 1, with an estimated weekly GDP drag of 0.1%, adds to fiscal stress. Central banks now hold more gold than Treasuries by value—a symbolic shift away from the dollar’s dominance.
President Trump announced sweeping new tariffs beginning October 1: 100% on pharmaceuticals, 50% on kitchen cabinets and vanities, 30% on upholstered furniture, and 25% on heavy trucks. These measures risk tightening financial conditions and complicating trade negotiations ahead of the APEC Trump-Xi summit in November.
Two pillars of the postwar FX order are eroding. The yen has lost its role as the world’s cheapest funding source, as inflation forced the BoJ to hike rates for the first time in nearly two decades, with USD/JPY now above 160. Meanwhile, the dollar’s safe-haven credibility is cracking under weak labor data, sticky inflation, and Washington’s reliance on tariffs and sanctions. Into this vacuum steps the Swiss franc. In 2025, CHF has surged 11% against the dollar and reached historic highs against the euro—even after the SNB cut rates to 0%. Ironically, the world’s ultimate safe haven now offers no yield. Yet reserve managers are rotating into the franc, lifting its share of global holdings for the first time in over a decade, as the USD’s slips below 58%. The franc is emerging as both the new funding vehicle and the ultimate refuge.
October 2025: Key Factors to Watch
The October 28–29 FOMC meeting will be pivotal, with markets assigning an 89% chance of another 25 bps cut. Payrolls (October 3) and CPI (October 10) will guide expectations. A deeper 50 bps cut or a surprise hold could push DXY between the 100 and 105 range.
How Washington navigates the October 1 shutdown risk and manages its $7.8 trillion debt rollover will shape Treasury yields and global risk sentiment. Watch for signs of fading foreign demand for Treasuries.
Tariff implementation on October 1 could dampen trade flows and consumer sentiment. All eyes will turn to November’s APEC summit for clarity on U.S.-China relations. Canada-U.S. trade talks and China’s liquidity measures will also be in focus.
This month reinforced a sobering message: the old anchors of FX—yen funding and dollar safety—are cracking. October will test whether the dollar’s modest resilience can hold, or whether fiscal risks and central bank divergence deepen the shift toward alternative safe havens like the Swiss franc.
August was turbulent for currency markets, with the US dollar weakening against nearly all major peers as the Federal Reserve signaled a pivotal shift in...
The U.S. dollar index (DXY) endured a volatile July, snapping a six-month decline only to reverse sharply after a dismal employment report. From January...
The first half of 2025 has delivered a broad-based setback for the USD, which has declined sharply against all major currencies. Year to date, the greenback is down 14.38% against the Swiss franc, 14.19% against the euro, 9.90% against the British pound, 8.84% against the Japanese yen, 8.01% against the New Zealand dollar, 6.23% against the Canadian dollar, and 5.35% against the Australian dollar. This decline reflects a shift in global interest rate expectations, resilience in foreign economies, and a recalibration of safe-haven demand.
The U.S. jobs market remains robust, and uncertainty surrounding tariffs is causing the Federal Reserve to pause its actions. Meanwhile, most G10 central...
The opening words of last month’s letter couldn’t have been more fitting: “There’s no turning back now, and the rest of the world knows it.”
The events that...
There’s no turning back now, and the rest of the world knows it. The reciprocal tariffs set to be announced on Wednesday, April 2nd, won’t resolve...
The Japanese yen was the top-performing currency in February, appreciating by 3.05% due to a combination of rising Japanese interest rates and a decline in...
