US Dollar Firms After ECB Leaves Rates Alone. Forecast as of 25.07.2025
The ECB has no plans to cut rates in September. Donald Trump has scorned the Fed chairman over the costs of a long-planned renovation project. These are compelling reasons for the EURUSD pair to strengthen. However, it is not showing any signs of growth. What are the reasons for this? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The ECB is in wait-and-see mode.
- The US administration continues to put pressure on the Fed.
- The eurozone economy is remarkably resilient to tariffs.
- Short trades can be increased if the EURUSD pair breaks through 1.173.
Weekly US Dollar Fundamental Forecast
If the market does not follow the expected trajectory, there is a significant risk that it will deviate from that trajectory. The ECB has stated that maintaining deposit rates at the current level is the baseline scenario for September, but the euro has not increased in value. US stock indices have reached new highs, and President Trump is still attempting to fire Jerome Powell, but the US dollar is holding strong. Following a prolonged period of growth, the EURUSD pair is hesitant on the heels of positive news. Has the upward momentum exhausted itself?
According to Christine Lagarde, the ECB is adopting a wait-and-see approach, as there is a high degree of uncertainty. Should the EU regulator cut rates in the near future, economic activity in the eurozone would likely revitalize. The ongoing discussions between the EU and the US administration regarding the latter’s readiness for 15% tariffs will likely offer more clarity shortly. The market has taken note of this. For instance, the PMI has reached its highest point since August 2024.
Euro-Area PMIs
Source: Bloomberg.
According to Bloomberg, ECB officials who are committed to maintaining the cycle of monetary expansion are encountering significant challenges. Inflation has stabilized near the 2% target, and the economy has shown remarkable resilience to tariffs. In this scenario, the baseline is that the deposit rate will remain at 2% in September. The derivatives market has lowered the probability of monetary policy easing before the end of the year by 25 basis points from 90% to 70%.
Market Expectations for ECB Monetary Expansion
Source: Bloomberg.
The European Central Bank’s strategy of maintaining borrowing costs is generally beneficial for the euro. According to Deutsche Bank, the cycle of monetary expansion may be coming to an end. It is only a matter of time before investors begin discussing the possibility of raising deposit rates. Unfortunately, this does not bode well for the EURUSD pair.
Bank of America believes that any uncertainty surrounding the future of the Fed chair will weaken the US dollar. Regardless of the outcome, the root of the problem will persist. Even a more traditional transition of power will not dispel investors’ concerns that the central bank is more limited in its actions. In this regard, Donald Trump’s latest criticism of Jerome Powell should have resulted in an increase in the EURUSD pair. The US leader has stated that, in the event that his manager had permitted overspending on a renovation project, he would have fired the manager.
Weekly EURUSD Trading Plan
The remainder of the year will differ from the previous one. Tariffs will decelerate the global economy, thereby providing a supportive environment for the dollar as a preferred safe-haven asset. However, timing is still a factor. As a result, there is a high risk of consolidation in the EURUSD pair. This indicates a shift in strategy towards selling the euro when it is strong and buying when it is weak. Therefore, short trades can be opened on a breakout of the support level of 1.173, adding them to the ones formed on the rise towards 1.18.
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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