Market Focus: Q4 2025, Inflation and Rates Take Centre Stage
Tuesday 07th October 2025 – 11:11 (BST)
As 2025 enters its final quarter, investors are weighing the outlook for the world’s three most watched currencies. The dollar remains underpinned by cautious Federal Reserve policy, the euro is edging higher but still shadowed by Europe’s political and economic strains, whilst sterling looks more fragile amid the UK’s stubborn inflation and weak growth.
USD: Steady With a Slight Edge
As we move into the final months of 2025, the US dollar looks set to hold its ground. The Federal Reserve has shown little rush to lower interest rates, against a backdrop of easing inflation and high consumer spend. On top of that, the dollar still benefits when global investors get nervous owed to its standing as the world’s preferred safe place for money. That said, worries over America’s rising debt and the chance of rate cuts next year could limit further gains. Overall, the dollar is more likely to end the year firm than falling but without the strong upward surge we’ve seen in recent years.
EUR: Edging Upward But Facing Hurdles
The euro has a decent chance of rising slightly against the dollar in late 2025. Inflation across the Eurozone is slowly moving toward the European Central Bank’s target, which could help support the currency now the ECB has officially ended its recent rate-cutting cycle. But political tensions in parts of Europe, along with shaky growth and energy worries, could cap those gains. The euro is likely to strengthen moderately, albeit against the backdrop of unrest in Ukraine.
GBP: More Fragile With Limited Upside
The British pound is the weakest of the three major currencies going into year-end. The UK economy is struggling with slow growth and persistent inflation, leaving the Bank of England stuck between keeping rates high and cutting to support activity. Recent bond market pressures due to concerns over government spending and borrowing are also hobbling GBP recovery. Expect a volatile quarter driven by economic data and the winter budget announced on November 26th.
Summary
Several events could quickly shift trends. A surprise jump in US inflation could force the Fed to hold rates higher for longer, giving the dollar another boost. Energy shocks or political turmoil in Europe could weigh heavily on the euro. In the UK, any new spending plans or a credible deficit-reduction push could move sterling sharply in either direction.
Trading ranges are anticipated to remain tight and ensuring a competitive rate when entering the market must be a priority. Medlock & Thames offers a free health-check of your current setup and can quickly qualify how much your foreign exchange transfers really cost.
If you’d like to discuss this further, please contact myself at cg@medlockandthames.com or +44(0)161 250 3376.
Christopher Gutfreund
Founder | Medlock & Thames