US Dollar Edges Higher After Powell’s Hawkish Talk. Forecast as of 19.06.2025
Seven FOMC members do not anticipate a reduction in the federal funds rate in 2025, and the Fed revised its inflation forecasts upwards. Against this backdrop, the EURUSD pair faced a sell-off. However, bulls also took advantage of the pair’s fluctuations. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Fed has extended its pause in the monetary expansion cycle.
- The US central bank still expects two rate cuts in 2025.
- The US dollar is acting as a safe-haven asset.
- Long trades can be considered if the EURUSD pair returns to the 1.149–1.161 range.
Weekly US Dollar Fundamental Forecast
The Fed has acknowledged its inability to influence the market. The FOMC is not in a position to predict the outcome of the Israeli-Iranian conflict and explore the implications of tariffs on the economy. The Fed has expressed concerns regarding the potential trajectory of fiscal and anti-immigration policies. The US president is considering appointing himself as the new head of the Fed, as he humorously suggested in his recent critique of Jerome Powell.
Markets were anticipating a hawkish surprise from the Fed. Some of their concerns have since materialized. The inflation forecast was revised upwards from 2.7% in March to 3%. The FOMC statement that accompanied the report noted an increase in the risks of higher unemployment and faster PCE. According to the median estimate, the regulator anticipates two acts of monetary expansion in 2025. However, the number of officials who would like to maintain the rate at 4.5% increased from 4 to 7.
Fed Funds Rate Projections
Source: Wall Street Journal.
In essence, the Fed has maintained a stance of openness, both regarding the potential reduction of borrowing costs and the continuation of its pause, with the objective of gathering as much data as possible. This could potentially result in the labor market cooling more rapidly than anticipated. However, until the financial implications of these tariffs are clarified, it would be prudent to adopt a wait-and-see approach. It is evident that the central bank’s current passive stance does not align with Donald Trump’s expectations. He urged the Fed to reduce interest rates by 1-2.5 percentage points without delay. The US President noted that he had already collected $88 billion in tariffs, despite the absence of rising inflation.
Following the June FOMC meeting, the market was stable, and the economy was secure. Bears received their hawkish surprise, while their opponents can be satisfied with the median federal funds rate forecast remaining unchanged. The central bank’s acknowledgment of its own limitations indicates that it is time for the market to consider alternative drivers. A prime example of this is the ongoing conflict in the Middle East.
According to MUFG Bank, any weakness in the US dollar will be contained as long as the Israeli-Iranian confrontation persists. Rising oil prices increase the risks of inflation accelerating and the Fed continuing its pause. As a result, the US dollar is being viewed as a safe-haven currency.
US Treasury Foreign Holders
Source: Bloomberg.
In April, foreign investors’ holdings of US Treasuries remained virtually unchanged at $9.01 trillion. China sold US Treasury bonds, but Japan and the UK purchased them. It seems that the rumors about the “Sell America” trend were exaggerated, and the US dollar remains a reliable safe-haven asset. Given that the epicenter of the turmoil lies outside the US, I believe this is the case.
Weekly EURUSD Trading Plan
In the current market conditions, if the EURUSD pair returns to the 1.149–1.161 range, long positions can be considered. At the same time, the pair may correct to 1.141.
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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