The actions of the US president appear to be contrary to his objective of weakening the US dollar. The Fed is delaying its decision to reduce interest rates due to high tariffs against Brazil, Canada, Mexico, and the EU. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
The Fed’s rate cut is delayed due to tariffs.The US will impose 30% tariffs on the EU.Powell’s dismissal will cause the dollar to fall by 3–4%.Long trades can be opened if the EURUSD pair grows above 1.1725.
Weekly US Dollar Fundamental Forecast
You can win a battle but lose the war. The US dollar posted its strongest weekly performance in four months, driven by expectations that large-scale tariffs will spur inflation, prompting the Fed to maintain high interest rates for an extended period. The market doubts that the US regulator will cut the rate in September, going from a previous sense of certainty to a more nuanced outlook. The EURUSD pair is flirting with the key level of 1.168, with market participants awaiting the release of US inflation data. The June statistics will provide crucial insights.
Market Expectations on Fed Cut by September
Source: Bloomberg.
According to Chicago Fed President Charles Evans, tariffs on Canadian and Brazilian goods could potentially accelerate consumer prices in the US. The US administration is exacerbating the situation by introducing tariffs. This complicates the Federal Reserve’s ability to predict inflation and lower interest rates. Despite political pressure, the US central bank will maintain its autonomy.
However, Deutsche Bank has a different perspective. It is believed that markets are underestimating the likelihood of Jerome Powell being dismissed as Fed chairman. On the other hand, Polymarket offers a 20% probability of this outcome. However, the US administration has taken additional action against the head of the central bank. Along with criticism from the president and calls for lower rates, Powell is under investigation for misleading Congress about the renovation of the Fed’s headquarters. The Supreme Court has ruled that the Fed chair can only be dismissed for a justifiable reason, rather than for political motives.
Deutsche Bank anticipates a decline in the USD index of 3–4%, accompanied by a 30-40 basis point rise in Treasury yields, should this scenario materialize. Meanwhile, hedge funds and asset managers are leveraging the recent gains of the US dollar to establish short positions.
Speculative Positions on US Dollar
Source: Bloomberg.
It remains to be seen whether Jerome Powell’s dismissal will be the sole basis for Donald Trump’s weakening of the US dollar. The actions of the US president have contributed to an increased risk of a correction in the EURUSD pair. Following 50% tariffs against Brazil and 35% against Canada, the US administration has announced 30% import duties against Mexico and the European Union.
Notably, the markets are not responding with the same level of panic as they did in April due to the “TACO trade” or the phased implementation of new tariffs. Sixty-nine experts from The Wall Street Journal remain undaunted by the intensifying trade tensions. They expect GDP growth in 2025 to be 1% compared to 0.8% in April. Inflation is expected to accelerate from 3.6% to 3%. The Fed is likely to cut rates one to two times before the end of the year.
Weekly EURUSD Trading Plan
Prior to the release of June’s CPI data, financial markets will likely exhibit elevated volatility, and the probability of unexpected price movements in the EURUSD pair may increase. Against this backdrop, it would be better to maintain a cautious stance. However, an aggressive strategy implies selling the euro below 1.168 and buying the single currency above 1.1725.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
