The US Federal Reserve reduced interest rates by 0.25 percentage points on 17 September 2025, bringing the target range to 4.00–4.25%.
This is the Fed’s first cut of the year, and it’s the first cut in decades, while core inflation (Core PCE) remains above 2.9%. One policymaker dissented, favouring a deeper 0.50 percentage point cut. Stronger retail sales figures likely influenced the majority’s decision to proceed more cautiously (Reuters).
Market Reaction So Far
Immediately after the decision:
- US government bond yields rose slightly across the curve, led by the five-year note.
- Currency markets: The US dollar weakened immediately after the decision, with the euro and sterling climbing.
- Equities: The S&P 500 index remained at record highs, a rare backdrop for a rate cut. In past instances where cuts occurred near record levels, US equities tended to be higher a year later, with a median 12-month gain of around 14.5% (Carson Research).
- Gold surged to record highs above US$3,700/oz, supported by expectations of more easing and safe-haven demand. Silver also gained (Reuters).
- Bitcoin fell by around 5%, highlighting the mixed response across asset classes.
Diverging Central Bank Paths
- The Bank of England has held its base rate steady at 4.00%, reflecting concerns about UK inflation.
- The BoE has also slowed the pace of reducing its balance sheet, slightly easing liquidity conditions.
- The overnight deposit facility (ODF) rate was cut from 4.40% to 4.15%, another sign of softer liquidity (Reuters).
This divergence matters:
- US dollar borrowers see immediate relief in loan costs.
- Sterling borrowers gain no base rate relief yet, though global easing may eventually push gilt yields lower.
Implications for the UAE
The UAE dirham is pegged to the US dollar, meaning the Central Bank of the UAE mirrors Fed decisions. Following the US cut, the UAE’s overnight deposit rate was reduced to 4.15% (Reuters).
As a result, the Emirates Interbank Offered Rate (EIBOR), which influences lending costs in the UAE, is expected to fall in line with US rates. This is expected to ease costs for mortgage holders and companies with debt facilities. However, banks may adjust gradually, so borrowers may not see immediate full reductions.
What This Means for Borrowers
- US borrowers: Direct benefit from lower borrowing costs; potential for further cuts if inflation eases.
- UK borrowers: No immediate relief, but liquidity measures and global easing trends may help over time.
- UAE borrowers: Policy rate reductions in line with the Fed should lower EIBOR and ease financing costs.
At GSB Private Finance, we understand that lending environments are shifting differently across regions and currencies. Our advisers combine private banking expertise with specialist lending knowledge to source appropriate terms for clients, ensuring their applications are positioned effectively with banks and credit risk teams.
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This article has been prepared by GSB for general public information purposes only. It does not constitute investment, tax, legal, or other advice. The views expressed are based on market conditions as of 23 September 2025 and may change without notice. Any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. You should not act or rely on this information without seeking professional advice tailored to your circumstances.
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