While the Fed keeps rates unchanged, Donald Trump is weakening the US dollar, and Scott Bessent is keeping it afloat. Political factors are prevailing over economic ones. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The Fed’s hawkish bias failed to help the greenback.
- There were two dissenting voices on the FOMC.
- The US is sticking to its strong dollar policy.
- Long trades can be considered while the EUR/USD pair remains above 1.193.
Weekly US Dollar Fundamental Forecast
According to Jerome Powell, the economy is strong, the labor market is stabilizing, and the fact that inflation is mainly driven by tariffs is good news. It would be worse if domestic demand were driving price growth. Such rhetoric may signal a prolonged pause in the monetary expansion cycle, which is a good sign for the US dollar. However, it does not really matter that the fate of the greenback is determined by speeches from US government officials rather than macroeconomic statistics.
First, Donald Trump drives the markets into a frenzy with his escapades, then the Treasury Secretary calms investors down. Scott Bessent said that the US did not intervene in the currency market to sell the greenback against the yen. Washington has always maintained a strong-dollar policy. The USD index may rise over time as imbalances in foreign trade are eliminated.
Unemployment Rate and US GDP
Source: Bloomberg.
Against this backdrop, Jerome Powell’s hawkish stance, which focused more than usual on the fact that inflation has not yet been defeated, could help EUR/USD bears. The market believes that the Fed will extend its pause until a new chairman is appointed and picked up dovish notes in Powell’s speech. These included, for example, the priority of employment over the economy. According to the Fed chair, labor market indicators are easier to interpret.
The pressure on the US dollar was caused by Christopher Waller’s unexpected dissent. No one doubted that Trump’s appointee, Stephen Miran, would vote for a rate cut. Warren is another story. The market was abuzz with rumors that he wanted to become the new Fed chair so much that he decided to take this step. Indeed, the FOMC governor’s chances have increased significantly.
Chances of Candidates for Fed Chair Position
Source: Bloomberg.
It always takes two to tango. The strengthening of the euro against the backdrop of the falling US dollar is not part of the ECB’s plans. In 2025, Vice President Luis de Guindos said the eurozone would face difficult times if the EUR/USD exchange rate exceeded 1.2. The European Central Bank may fail to meet its inflation forecast and return to a loosening of monetary policy. The governor of the Bank of France, François Villeroy de Galhau, says that the regulator will take into account events in the Forex market when making decisions on interest rates.
However, when confidence in the US dollar weakens, it will be virtually impossible for the ECB to prevent investors from selling off the greenback and the entire class of US assets.
Weekly EURUSD Trading Plan
In such conditions, the previous strategy of buying the EUR/USD pair on pullbacks remains relevant while the euro is trading above the support level of 1.193.
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
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