The Dollar Looks Damaged. Forecast as of 06.08.2025
The new head of the Bureau of Labor Statistics might start delivering surprisingly good numbers for the US economy. However, that could make the Fed more cautious about cutting rates. So how will Donald Trump handle this dilemma? Let’s find that out and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- The Fed may cut rates three times in 2025.
- Tough times lie ahead for the next Fed Chair.
- Stagflation fears are weighing on the dollar.
- A breakout above 1.16 is a foundation for buying EUR/USD.
Weekly Fundamental Forecast for Dollar
How many rate cuts will the Fed deliver in 2025? It all depends on the FOMC lineup and the data. Or rather, on those who report the data. Trump’s dismissal of the BLS chief over alleged jobs data manipulation has made traders uneasy. A new appointee might dance to the White House’s tune, skewing the stats. In that context, avoiding US markets seems wise, as capital inflows into Europe support EURUSD.
DoubleLine Capital expects the dollar index to keep falling. A weakening US economy and a Fed Chair obedient to Trump’s agenda could break the greenback’s back. The main risk to this scenario would be a growth rebound driven by reduced trade uncertainty and fiscal stimulus.
Frankly, I fully agree with this view. After a streak of disappointing jobs and activity data, the futures market now projects a 48% chance of three Fed rate cuts in 2025. The odds of two cuts stand at 42%, and just one — 10%. Derivatives traders don’t believe the 4.5% Fed Funds rate will hold through year-end.
Fed Rate Cut Probabilities
Source: Wall Street Journal.
But if the new BLS head follows Trump’s lead, the data may begin beating expectations, delaying potential Fed rate cuts. Trump’s solution? Appointing his puppet as Fed Chair. The sudden departure of Adriana Kugler gives him a window to push someone loyal into the FOMC.
That person would have to clash with other Committee members to prove allegiance to the White House. But FOMC decisions are made collectively, and I doubt any puppet can sway seasoned central bankers that easily.
In the end, Trump’s “big, beautiful store,” as he called the US economy, may turn into a store of damaged goods. With a Fed Chair following White House orders and the BLS tweaking the data, investors may simply choose to avoid anything American, including the dollar.
ISM Services Prices Index Trends
Source: Wall Street Journal.
For now, the greenback is selling off due to revived stagflation fears. Services sector activity suggests stagnation, while a spike in the ISM prices index — now at its highest since October 2022 — combined with a fourth drop in employment in five months points to rising stagflation risks.
Weekly Trading Plan for EURUSD
EURUSD longs opened on the rebound from 1.155 remain valid and can be built up on a breakout above the 1.16 resistance.
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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