One reason for using fixed initiative is simplicity.

The other thing to think about is that, under your new system, some creatures can get two turns back-to-back. If a dangerous monster attacks a character late in one initiative round, it could then attack the same character early in the next initiative round, doing a lot of damage before the character can react.

(I've played a lot of combat in game systems which use dynamic initiative, such as Gloomhaven, and I know that this is an important thing to consider.)

Interestingly, PF2e allows the delay action, where a character can simply decide to act later in the round. Normally this is bad because it permanently decreases your initiative count, but that doesn't appear to be a consideration if you have dynamic initiative. If you feel that you don't like the unpredictability of monsters potentially acting twice in between your actions, you can avoid it by simply delaying your initiative until you always go last in each round. (Unless your GM has house ruled this as well.)

I predict that your group will also sometimes see a tactical advantage from delaying -- for example if a monster is far away from you, your group will see benefit in delaying to force the monster to spend actions to move toward them, rather than vice versa.

You've asked:

what else do you think we should absolutely change to keep the game balanced?

There's nothing that you need to change -- the game seems reasonable as is. But you should probably check with your DM if the "delay" action is allowed, and if it is allowed then you should think about ways to use it tactically in combat.

One reason for using fixed initiative is simplicity.

The other thing to think about is that, under your new system, some creatures can get two turns back-to-back. If a dangerous monster attacks a character late in one initiative round, it could then attack the same character early in the next initiative round, doing a lot of damage before the character can react.

(I've played a lot of combat in game systems which use dynamic initiative, such as Gloomhaven, and I know that this is an important thing to consider.)

Interestingly, PF2e allows the delay action, where a character can simply decide to act later in the round. Normally this is bad because it permanently decreases your initiative count, but that doesn't appear to be a consideration if you have dynamic initiative. If you feel that you don't like the unpredictability of monsters potentially acting twice in between your actions, you can avoid it by simply delaying your initiative until you always go last in each round. (Unless your GM has house ruled this as well.)

I predict that your group will also sometimes see a tactical advantage from delaying -- for example if a monster is far away from you, your group will see benefit in delaying to force the monster to spend actions to move toward them, rather than vice versa.

In PF2e specifically, there are "two round spells" such as Summon Draconic Legion which are balanced assuming that enemies will get a turn to move away from them to avoid damage. With dynamic initiative, a caster can manipulate their initiative to make it less likely that the enemy will get a turn. You might attempt to patch this by saying that these two-round spells last exactly one round even if the caster's initiative changes. But you might feel that this is too much bookkeeping, and simply accept that the spells are stronger now.

You've asked:

what else do you think we should absolutely change to keep the game balanced?

There's nothing that you need to change -- the game seems reasonable as is. But you should probably check with your DM if the "delay" action is allowed, and if it is allowed then you should think about ways to use it tactically in combat.