Published: 9/19/2025

Overall Market Sentiment: The market mood is cautious and event-driven, with two conflicting narratives vying for attention. While a surprisingly strong U.S. labor market print is providing short-term support for the dollar, a hawkish shift from the Bank of Japan has introduced a significant new dynamic that points to longer-term JPY strength.

Currency Outlooks

⚖️ USD: The dollar is holding onto its post-Fed gains, aided by an unexpected sharp drop in jobless claims. While this rare piece of positive labor data provides a near-term floor for the currency, it is unlikely to alter the bigger picture. The broader trend of a cooling labor market remains intact, and the market is still firmly anchored to the Fed's dovish dot plot, which signals further rate cuts. We view the dollar's current strength as vulnerable and likely to fade.

🔺 JPY: The Yen is the session's main focus following a hawkish surprise from the Bank of Japan. While rates were held steady, a split vote with two members dissenting in favor of a hike is a material signal that the central bank is moving closer to policy normalization. This dramatically raises the probability of an October rate hike, a development the market has not yet fully priced, suggesting a clear path for sustained Yen appreciation ahead.

⚖️ EUR: The single currency is in a holding pattern, with its upward momentum stalled by the dollar's temporary resurgence. The spillover from France's recent debt downgrade and ongoing political negotiations remains contained and is not a systemic drag on the Euro at this stage. The EUR/USD cross is primarily waiting for the dollar's next directional move, which we expect to be lower.


⚖️ GBP: Sterling is treading water, caught between the cross-currents of a firming U.S. dollar and its own supportive yield dynamics. With no major domestic data on the docket, the pound is being driven by the broader market narrative. Until the dollar resumes its expected downtrend, GBP is likely to remain in a consolidative range.

🔺 AUD: The Australian dollar has a bullish bias heading into the close of the week, positioned as the primary beneficiary of any positive geopolitical developments. All eyes are on the scheduled phone call between the U.S. and Chinese presidents. Any hint of a de-escalation in trade tensions would provide a significant boost to the Aussie, given its high sensitivity to global risk sentiment and Chinese economic news.

⚖️ CAD: The Canadian dollar is tracking the broader market, finding itself supported by positive risk sentiment but capped by the dollar's resilience. Like the Aussie, it stands to benefit from any positive headlines regarding U.S.-China trade relations. However, without a decisive move in oil prices or a clearer risk signal, the Loonie is likely to remain range-bound for now.