- On 17 September the Federal Reserve cut rates by a quarter point, the first cut of 2025.
- It cited the cooling of the labour market, in line with what Powell had signalled weeks earlier.
- With the Fed cutting and the ECB on hold, the dollar stayed weak: it is wise to review the currency risk of dollar assets.
On 17 September 2025, the Federal Reserve cut interest rates by a quarter point, the first cut of the year. The central bank cited the cooling of the labour market as the main reason, which confirmed the change of approach Jerome Powell had signalled weeks earlier in Jackson Hole. After months of waiting, the move was expected, but not irrelevant for that: it marked the start of a new phase of US monetary policy.
A rate cut in the United States has effects beyond its borders. It changes the cost of credit in dollars, the return on deposits and bonds in that currency and, above all, the relative value of the dollar against other currencies. For anyone with income, debts or investments in dollars, it is news worth understanding calmly and without needing to react at once. Central bank decisions are rarely well understood in a quick reading.
The first cut of the year
The Federal Reserve cut rates by a quarter point, the first cut of 2025. It did so citing the cooling of the labour market, which confirmed the change of approach Powell had signalled weeks earlier in Jackson Hole. A speech thus became a decision, as often happens when central banks prepare markets well.
A quarter point is a small change in absolute terms, but its meaning depends on context. Here it marked a change of direction in monetary policy, and markets paid attention not only to the figure but to the signals about next steps. The words of the statement and the press conference weigh almost as much as the decision itself. That is why it is worth reading the full text and not just the headline.
The Fed and the ECB at different speeds
With the Fed cutting and the ECB on hold, the dollar remained weak against the euro. When one central bank cuts rates and the other does not, the first one’s currency tends to lose appeal for investors seeking returns, and that is why the euro stayed strong.
It is a familiar dynamic: capital moves to where it earns better returns, and differences in rates between areas influence exchange rates. It is not the only factor, because growth, inflation and confidence also weigh, but it is one that analysts watch most closely and that shows up fastest in prices.
The effect of the exchange rate
For portfolios with assets in dollars, the currency subtracted part of the return earned. A holding that rises in dollars can give a smaller result when converted into euros if the dollar has weakened, which is why it is worth reviewing how much currency risk is being taken and whether one wants to keep, hedge or reduce it.
Reviewing currency exposure means asking in which currency money will be spent in future, in which currencies investments are held and what part of the result depends on the exchange rate. The answer is personal: someone who lives and spends in euros has different reasons from someone with obligations in dollars. An adviser can help to put those pieces in order without recommending any particular currency. If wealth is well spread, a move in the dollar should not jeopardise anyone’s goals.
The result of an international investment depends on the asset, but also on the currency.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
