Global Watch September 2025
After a nine-month hiatus, the Fed looks set to resume lowering interest rates as it balances upside risks to inflation and downside risks to employment. We expect it to cut by 25bps this month and by a further 75bps by mid-2026. With Euro area inflation back at target and the deposit rate in broadly neutral territory, we see the ECB on hold for an extended period. In the UK, rising inflation is making the Bank of England’s job harder. We are pushing out the next 25bps cut in rates to February, followed by a further 25bps reduction in Q2. While US stocks and bonds have recovered from their post-Liberation Day slump, the dollar has remained under pressure. We expect EURUSD to retest July’s year-to-date high of almost $1.1850 and to move up into a range of $1.20-$1.25 in H1 2026. We see EURGBP in a range of £0.84 to £0.89, slightly
higher than previously expected, reflecting the pound’s underperformance against the euro this year.