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The top global currencies showed continued volatility in August. The USD weakened significantly due to the expectations of Fed rate cuts, while the INR also weighed sharply past ₹88. In contrast, the CNY strengthened due to China’s appreciation bias.
Global FX market outlook - Sep’25
USD
The USD index slipped from 99.904 at the start of August to 97.855 by month-end. This was mainly due to expectations of the Fed rate cut, weak payroll data and limited tariff impact on inflation. Moreover, political pressure on the Fed, including the firing of Governor Cook, further impacted the currency.
Brief support came from a higher Producer Price Index (PPI) and cautious Federal Open Market Committee (FOMC) minutes; however, it soon faded.
INR
The INR weakened past 88.00 for the first time in August, closing the month at 88.20 compared to 87.61 at the start. Reasons such as capital outflows and weak FPI interest have led to a weakened INR. Additionally, INR closely tracks US interest rates and whenever US rates rise, domestic savings tend to flow abroad instead of staying in India.
The RBI has tried to support the currency, but interventions have already cost around USD 15 billion when the INR was near 88 earlier.
CNY
CNY moved from 7.2000 at the start of August to 7.1307 by the month-end. The CNY showed appreciation bias, with the People's Bank of China (PBOC) setting stronger fixes to keep it below 7.11. Recently, PBOC appears to be guiding the CNY toward 7.00 medium term, reinforcing its potential role as a reserve currency.
JPY
JPY traded from 150.74 at the start of August to around 147.05 by the month-end. The JPY remained fairly steady, influenced by Japanese politics. PM Ishiba’s survival improved the chances of a Bank of Japan (BOJ) rate hike, but political risks around VAT adjustments and debt issuance complicate the policy outlook.
EUR
EUR rose from 1.1428 at the start of August to 1.1687 by the month-end. Inflation and wage growth trends have limited the European Central Bank’s (ECB) scope for aggressive cuts, leading to flows favouring the EUR.
While Fed cuts could improve EUR inflows, it could hurt competitiveness, especially against inexpensive Chinese imports.
GBP vulnerable amid inflation risk
The GBP moved from 1.3214 in early August to 1.3504 by month-end. The GBP strengthened after the Bank of England’s (BOE’s) close 5–4 vote to cut rates by 25 bps. While the growth has been weak, inflation has stayed stubbornly high, preventing faster rate cuts. The uncertain inflation path keeps BOE policy unclear.
Key Takeaway
In this volatile FX market, while the USD is trending weaker, currency movements are diverging, with the CNY gaining strength and the INR continuing to lag. Looking ahead, the fading of the peace dividend and the return of fiscal dominance will be the main global forces shaping currencies.
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