Greenback Faces Sell-Off As Investors Cut Dollar Exposure. Forecast as of 16.09.2025
Divergences in monetary policy and GDP growth are not the only drivers of the EURUSD rally. Non-residents are actively hedging currency risks associated with holding US assets, and the independence of the Fed is under threat. Let’s discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Growing demand for hedging weakens the US dollar.
- Donald Trump continues to put pressure on the Fed.
- The market expects the Fed to cut rates by 150 basis points in the current cycle.
- Long trades on the EURUSD pair can be opened with the target of 1.22.
Weekly US Dollar Fundamental Forecast
The EURUSD pair has emerged from consolidation and is moving towards a recovery in the upward trend amid growing global risk appetite and divergence in economic growth and monetary policy. Tariffs are weighing on Americans, which, combined with the US administration’s anti-immigration policy, is cooling the labor market and slowing GDP. Meanwhile, the greenback also faces pressure from increased hedging by non-residents and Donald Trump’s crackdown on the Fed.
According to Deutsche Bank, for the first time in a decade, inflows into US asset-focused dollar-hedged ETFs have recently exceeded those into unhedged funds. This accounts for 80% of flows related to stocks and 50% related to bonds. These processes explain why the US dollar is weakening despite the growth of non-resident investment in US securities.
Foreign Holdings of US Assets
Source: Bloomberg.
According to JP Morgan Asset Management, the greenback could weaken further if, following the September FOMC meeting, investors believe that the Fed’s decision to cut rates was the result of political pressure. Donald Trump has predicted a large cut in the federal funds rate, as conditions are right for this. Congress approved Stephen Miran as FOMC governor, even though he is not leaving the US administration.
According to Morgan Stanley and JP Morgan, the Fed’s cautious tone could bring back fears of a US economic slowdown and damage the dollar. A 25 bps cut alone is unlikely to boost the US labor market. The slower the central bank moves down the path of monetary expansion, the greater the chance that it will stall and the US will slip into recession.
However, if the Fed accelerates the cycle, the markets will be proven right. They expect the federal funds rate to fall below 3% in the current cycle, which is more than 150 bps. Against the backdrop of the ECB’s prolonged pause, EURUSD bears will likely face significant pressure.
Market Expectations on Fed Rate Trajectory
Source: Bloomberg.
Therefore, there is a growing sentiment that any outcome of the September FOMC meeting will hurt the US dollar. Meanwhile, the EURUSD pair may fail to resume its uptrend due to the Fed’s June forecast of two rate cuts in 2025. Should there be more rate reductions, the US dollar will plummet.
Weekly EURUSD Trading Plan
Against this backdrop, long positions formed at 1.165 on the EURUSD pair can be kept open and increased. The major currency pair has almost reached its targets of 1.182 and 1.194, and retains the potential to hit the long-term target of 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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
