US Dollar Declines as Trading Partners Dazed and Confused. Forecast as of 01.09.2025
Unlike in authoritarian regimes, presidents in democracies do not have the power to make decisions single-handedly. The judges’ decision to rule tariffs illegal was a serious defeat for Donald Trump and the US dollar. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Judges have ruled that US tariffs are illegal.
- International trade has plunged into turmoil.
- Donald Trump’s team is looking ridiculous.
- Long trades on the EURUSD pair can be opened with targets of 1.2 and 1.22.
Weekly US Dollar Fundamental Forecast
Donald Trump was undoubtedly preparing for retaliation related to tariffs and trade wars. However, he did not expect an attack from within. The Court of Appeals upheld the International Trade Court’s ruling that the US administration’s universal tariffs are illegal, causing the EURUSD exchange rate to grow. What will happen to the economy if the US has to return billions of dollars?
The Court of Appeals’ decision has caused chaos in international trade. Many countries have already signed trade agreements with the US and promised significant investments. This was a severe defeat for Donald Trump. However, the US administration can appeal the decision to the Supreme Court and present other grounds for imposing tariffs. Additionally, Donald Trump has time because the Court of Appeals instructed the Court of International Trade to review tariffs for all countries, not just those against which the lawsuit was filed.
Speculative Positions on US Dollar
Source: Bloomberg.
The EURUSD pair’s surge seems predictable. After all, it is not just about the money that the US will have to return. Without tariffs, the global economy will not slow down. The export-oriented Eurozone will recover along with China. When global GDP surpasses that of the US, the USD index tends to plunge. Meanwhile, speculators are increasing their short trades on the US dollar due to divergence in economic growth, among other reasons.
Previously, the greenback fell due to expectations that the Fed would cut the federal funds rate in September and throughout the rest of the year. Curiously, the cancellation of tariffs will effectively untie the US central bank’s hands. Even those concerned about accelerating inflation will vote for monetary policy loosening.
Before the Court of Appeals’ decision, Donald Trump deserved applause for his successful attempts to reshape the world trade system. Now, however, the US leader and his team are starting to look ridiculous. First, Treasury Secretary Scott Bessent mistakenly referred to economic models. Allegedly, these models signal the need to lower rates. Then, the leading candidate for Fed chairman made a blunder. Christopher Waller announced the continuation of the monetary expansion cycle in September, for a period of three to six months, given the weakening labor market and anchored inflation expectations.
US Inflation and Real Interest Rate
Source: Bloomberg.
Judging by the ratio between US Treasuries and Treasury Inflation-Protected Securities (TIPS), they have never been anchored. The ratio has reached its highest level in six months. Markets expect inflation to accelerate in response to the Fed’s intention to cut rates aggressively.
Weekly EURUSD Trading Plan
If tariffs are canceled and the interest rate is reduced, long positions can be considered on the EURUSD pair with the targets of 1.2 and 1.22.
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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