US Dollar Weakens After Fed Rate Cut to 4.25% — Euro and Pound Gain, Yen Under Pressure

Quotes fell to a yearly low of 96.00 on the USDX following the conclusion of the Federal Reserve’s two-day policy meeting, where the benchmark rate was cut by 25 basis points to the range of 4.00–4.25%. Fed Chair Jerome Powell noted that tariff restrictions had pressured the housing market and accelerated inflation, but their impact proved less severe than expected and does not yet appear long-term. According to a survey of policymakers, 12 out of 19 respondents believe it would be appropriate to lower the rate by another 25 basis points by year-end, while 10 out of 19 did not rule out a larger 50-basis-point move. Overall, the meeting and Powell’s comments had only a temporary effect on the trend, and global pressure on the dollar is likely to persist.

Eurozone

The euro is strengthening against the dollar, pound, and yen.

Recent data showed that the Consumer Price Index dropped toward the European Central Bank’s (ECB) 2.0% target, matching July’s figure, while the Producer Price Index declined more sharply. Analysts expect Germany’s PPI to fall by –0.1%, driving the annual figure from –1.5% to –1.8%. Against this backdrop, keeping rates unchanged could deepen deflation, leaving room for dovish policymakers to regain the initiative by year-end.

United Kingdom

The British pound is gaining against the yen and the dollar but weakening versus the euro.

The Bank of England kept its benchmark interest rate steady at 4.00% following its September meeting, with 7 Monetary Policy Committee members voting in favor and 2 members calling for a cut. The central bank also announced plans to reduce its balance sheet assets by £70.0 billion over the next 12 months, bringing the total down to £488.0 billion. Inflation remains a key focus: the annual rate stood at 3.8%, well above the 2.0% target, while the monthly reading rose from 0.1% to 0.3%. A further rate cut at this point could accelerate inflationary pressures. The decision may also have been influenced by preliminary retail sales estimates, due tomorrow at 08:00 (GMT+2), with expectations pointing to a slowdown from 1.1% to 0.6%

Japan

The Japanese yen is weakening against the pound, euro, and U.S. dollar.

The Bank of Japan will meet tomorrow, with forecasts suggesting that rates will remain unchanged at 0.50%. The Fed’s recent 25-basis-point cut narrowed the gap between the two economies, reducing the need for immediate tightening in Japan. Additionally, August inflation data will be released at 01:30 (GMT+2). Analysts expect the nationwide core CPI, excluding food and energy, to fall from 3.1% to 2.7%, keeping it within the BOJ’s stated range and lessening the urgency for a rate hike.

Australia

The Australian dollar is declining against the euro and pound but rising against the yen and dollar.

A labor market report published this morning showed that the unemployment rate, seasonally adjusted, stood at 4.2% in August. Employment fell by 5,000, partly offset by a 1,000 increase in unemployed persons. Full-time employment declined by 41,000, while part-time employment decreased by 36,000. Meanwhile, the total number of hours worked in August slipped by –0.4%, driven by fewer people working full-time.

Oil

Oil prices are consolidating just above the key monthly mark of 67.00 after the Fed’s decision to cut rates for the first time this year by 25 basis points, which triggered a local uptick in the dollar.

The upward move is also supported by inventory data. According to the American Petroleum Institute (API), U.S. stockpiles fell by 3.420 million barrels over the past week, while the Energy Information Administration (EIA) reported a larger drawdown of 9.285 million barrels. Unless reversed next week, this trend may confirm a sustained reduction in output.