US Dollar Slips As Bessent Calls For Rate Cuts. Forecast as of 20.08.2025
Scott Bessent sparked widespread market shifts with his statement regarding lower Fed interest rates. However, the Treasury Secretary’s reference to models lacks a solid foundation. The US dollar’s position remains strong and resilient. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The Fed will not aggressively cut rates.
- US GDP growth will slow to 1.6–1.7%.
- Europe will outperform the US in 2026.
- A rebound from 1.155 and 1.15 will give a buy signal.
Weekly US Dollar Fundamental Forecast
Jerome Powell will unlikely greenlight multiple rate cuts in the federal funds rate in Jackson Hole. EURUSD bears’ concerns regarding a potential reduction in Treasury purchases by non-residents, increased hedging, and a weakening of the Fed’s monetary policy by 150–175 basis points did not come to fruition. This suggests that the major currency pair may face a consolidation. However, the upward trend will unlikely reverse.
Scott Bessent has found himself in the spotlight, prompting him to address the markets’ heightened focus on his person. In fact, he has said quite a lot. Occasionally, some market experts view his statements as completely ridiculous. Treasury Secretary’s remarks on models, which suggest that the federal funds rate should be 150–175 basis points below the current level, have been criticized. One of the latest financial institutions to voice concerns about the feasibility of this approach was Deutsche Bank, which stated that it is not a realistic expectation because there are no such models.
Expected and Actual Fed Rates
Source: Bloomberg.
Against this backdrop, Bessent’s deputies were compelled to explain their boss’s words. According to officials from the Finance Ministry, Scott Bessent’s comments were in reference to the Fed’s long-term neutral rate forecast. The estimated range is 2.6–3.6%.
If the Treasury Secretary anticipated a response from investors, he did receive it. Markets tend to act with minimal foresight. However, when all the elements align, everything becomes clearer. As a result, the EURUSD pair has failed to break through the 1.17 level and retreated.
Bears seem to have received support from S&P Global Ratings, which maintained the US rating at AA+ with a stable outlook. The agency anticipates that tariff revenues will help offset the anticipated deterioration in the financial situation due to tax cuts.
In response, Donald Trump cited a statement from S&P Global Ratings noting significant tariff revenues. However, he disregarded other details of the report. The agency has concluded that the country’s creditworthiness is not at risk, despite the president’s actions. The organization anticipates GDP growth of 1.7% in 2025 and 1.6% in 2026. These figures are notably lower than the average of 2.8% recorded during the final two years of Joe Biden’s administration. Republicans had hoped to stimulate the economy, but the initiative faced roadblocks.
US Real GDP and Forecast
Source: Bloomberg.
Unfortunately, fiscal consolidation has never been a beneficial practice. Europe is poised to outperform the US in terms of economic growth in 2026. This is particularly relevant in light of the ongoing conflict in Ukraine. This is further compounded by the ECB’s anticipated shift in monetary policy, marked by the end of its monetary expansion cycle and the subsequent rise in interest rates next year. It will become evident that the upward trend of the euro against the US dollar remains intact.
Weekly EURUSD Trading Plan
However, the EURUSD pair may still face corrections. A drop to 1.155 and 1.15, followed by a rebound from these levels, will be a reason to take profits on short trades and open long positions. That is, of course, unless the major currency pair surges without any drawdowns.
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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