September 2026 Currency Market Update

A hawkish Jackson Hole, an ECB rise all but priced, and four central bank decisions inside three weeks. The summer lull is well and truly over.

US volatility incoming

The Pound

Sterling Gives Back Ground as the Rate Gap Narrows

August is meant to be the quiet month, and for a while it looked that way in Westminster. Andy Burnham and his Chancellor, John Healey, spent the summer settling into government rather than making headlines. The calm has a deadline attached though: the first Budget lands on 28th October, and Healey has spent the past fortnight insisting that fiscal discipline is the bedrock of his approach.

That's easier said than done. Rising defence spending, the lingering cost of borrowing after the Iran conflict, and manifesto promises on households have all narrowed the Treasury's room for manoeuvre. There's talk of up to £9 billion in extra borrowing for infrastructure and housing, and a fresh look at business rates for high street firms. None of that changes anything for currency markets today, but it's the backdrop the pound will be trading against as fiscal headlines build through the autumn.

Nearer term, the Bank of England meets on 17th September, a day after the Fed. Markets are leaning towards another hold at 3.75%, though there's a real if smaller chance of a rise after three committee members voted for one in July. For any business with sterling exposure, the week of the 14th is the one to have in the diary: three of the four decisions that matter land inside it.

The US Dollar

Dollar Swings from Slump to Recovery After Jackson Hole

The dollar has had a turbulent few weeks. Weak US jobs figures in early August, including a surprise fall in payrolls, dragged it to some of its lowest levels of the year. Japan's decision to step in and support its own currency added to the pressure, producing one of the dollar's sharpest one-day falls in years.

Then the mood flipped almost overnight. At the end of the month, new Fed chair Kevin Warsh used a speech in Jackson Hole to strike a noticeably more hawkish tone on inflation. Markets now see roughly a two in three chance of a US rate rise at the Fed's meeting on 16th September, double where the odds sat before the speech, and the dollar has clawed back a good part of what it lost.

The practical point for anyone buying or selling dollars is the speed of it. A single speech moved the odds of a rate decision from a quarter to two thirds and took the currency with it. Rates that looked available at the start of August were gone within a fortnight and are only now partially back. The 16th is the next test.

The Euro

Inflation Jump Makes a September Hike a Formality

Eurozone inflation jumped to 3.3% in August, its highest reading since 2023. The rise was driven almost entirely by energy costs, as Middle East tensions pushed oil prices sharply higher through the month.

Markets now treat a European Central Bank rate rise at its 10th September meeting as close to a formality. That matters for sterling, because the wide gap between the Bank of England's 3.75% and the ECB's 2.25% is what underpinned the pound's strength against the euro all year. Narrow the gap and you narrow the advantage.

The pound has already given back some of its gains against the euro over the past few weeks in anticipation. It spent much of the summer near its best levels in a year, and that position has softened. For importers paying in euros, the favourable run of the past twelve months is no longer something to take for granted.

Elsewhere

Australia and New Zealand Keep Moving Faster Than Expected

The Australian dollar has been the summer's quiet achiever. The Reserve Bank of Australia held rates at 4.35% in August, but a stronger than expected inflation reading a few weeks later, 3.5% annually against forecasts of 3.3%, has revived talk of a further hike at its meeting on 28th and 29th September. It's a live enough prospect that at least one major bank now expects a rise rather than a hold, a notable change from the settled picture of a month ago.

New Zealand has continued the pattern of moving faster than expected. The Reserve Bank of New Zealand raised its Official Cash Rate again on 2nd September, to 2.75%, its second hike since restarting the cycle in July. Oddly, the kiwi dollar weakened rather than strengthened on the news, because the accompanying statement was less hawkish than traders had hoped, pencilling in a pause in October before a further move in December.

It's a useful reminder that a rate rise on its own doesn't guarantee currency strength. The guidance attached to it can matter more than the decision itself.

What to Watch

September is busy. The European Central Bank meets on the 10th, the Federal Reserve on the 16th, the Bank of England on the 17th, and the Reserve Bank of Australia on the 28th and 29th. Almost every currency in this update has a live decision inside three weeks. Add a UK Budget now firmly on the horizon for late October, and it's worth keeping an eye on the calendar as everyone heads back to their desks.

Current Market Rates, 8th September 2026

GBPEUR (Current) 1.1640 (High) 1.1827 (Low) 1.1368

GBPUSD (Current) 1.3525 (High) 1.3869 (Low) 1.3140

EURUSD (Current) 1.1620 (High) 1.2081 (Low) 1.1324

Rates shown are indicative mid-market rates for reference only. High and low figures are year to date.

Want to discuss how these moves affect your business? Get in touch with the Pathfinder FX team. desk@pathfinder-fx.com 01743290955