Fed Potential Divide Sends US Dollar Plunging. Forecast as of 27.06.2025
The Fed is an institution with a multi-faceted nature of policy-making, not a single entity controlled by one or two people. Decisions regarding the federal funds rate are made collectively. Meanwhile, the EURUSD pair retreated amid caution expressed by FOMC officials in their recent speeches. Let’s discuss this topic and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The US trade balance is deteriorating.
- Most Fed officials are reluctant to cut rates.
- The US dollar may restore its direct correlation with the S&P 500.
- Long trades can be maintained as long as the EURUSD pair remains above 1.16–1.1625.
Weekly US Dollar Fundamental Forecast
In light of spiking US stock indices, falling Treasury yields, declining oil prices, and the slumping USD index, investors are assessing the effectiveness of Donald Trump’s policies. Some experts have speculated that markets could return to trading on American exceptionalism, as the US administration has demonstrated its ability to manage crises effectively. However, the US government has not taken everything under control. The Fed is not yielding to pressure from the US president. The labor market continues to show signs of cooling, and foreign trade is presenting unpleasant surprises.
US Treasury Yield, US Dollar, Brent, and S&P 500 Performance
Source: Bloomberg.
The EURUSD pair’s rise above 1.17, a level not seen in over three years, was driven in part by speculation of a potential cut in the federal funds rate as early as July, sparked by dovish comments of Christopher Waller and Michelle Bowman. Both were appointed to their posts by Donald Trump, and one of them will likely assert the role of a shadow Fed chair.
Should two FOMC members vote for a rate cut in July, it will represent the most significant divide in the Fed since 1988. However, the US central bank is not a one-person entity. The decision-making process is carried out collectively. The fact that Jerome Powell, John Williams, Mary Daly, Susan Collins, Thomas Barkin, and Austan Goolsbee have adopted a cautious stance has tempered EURUSD bulls. Concerns regarding the US dollar resuming its cycle of monetary expansion at the upcoming FOMC meeting are largely unwarranted.
While Donald Trump’s policies may not be as successful as initially perceived, a 5.2% decrease in US exports, which was not anticipated, and an increase in the trade deficit to $96.6 billion in May have led to questions regarding the effectiveness of current trade policies.
US Trade Balance and Exports
Source: Bloomberg.
Foreign markets have shown a decline in demand for US assets. This could potentially increase the risk of pressure from the US administration on its trading partners as July 9 approaches, the date when the 90-day tariff moratorium expires. The US administration may assert that it can be extended, but such rhetoric is merely a negotiation tactic aimed at supporting the S&P 500 index. The broad stock index would hardly have been able to reach new record highs without support from Donald Trump and his administration.
The restoration of its direct correlation with the US dollar was another factor in the EURUSD pair’s retreat. The US dollar has once again become a safe-haven asset as the epicenter of financial market turmoil has shifted from the United States to the Middle East. If markets stabilize, there will be an increased likelihood of the S&P 500 and the US dollar moving in tandem.
Weekly EURUSD Trading Plan
There is no guarantee that the pair will move in an upward direction. The ongoing escalation of trade wars and the cooling of the US economy and the labor market are significant factors supporting the rally in the EURUSD pair. While the euro is trading above 1.16–1.1625, investors should prioritize purchasing the single currency.
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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