Dollar Drops to Four-Year Lows Against Euro Ahead of Fed Meeting. Forecast as of 17.09.2025
The market is confident that the Fed will cut rates by 25 basis points, although the actual reduction may be more substantial. Fed doves have presented an argument, yet they have been erroneously labeled as Donald Trump’s lapdogs. Let’s discuss this topic and develop a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The Fed is preparing to resume its cycle of monetary expansion.
- Donald Trump is demanding a sharp rate cut of 50 basis points or more.
- The US administration should be cautious with its wishes.
- Long trades on the EURUSD pair can be opened with the target at 1.194.
Weekly US Dollar Fundamental Forecast
It has been a long time since the financial markets have seen such an exciting performance as the September FOMC meeting. The last time there were three voices of dissent was in 1988. Now there may be even more. Whatever verdict the central bank delivers, investors may always feel that it was the result of political pressure. There is a view that the current Fed meeting will be Donald Trump’s beauty contest. The grand prize for the winner is the Fed chair seat.
Loretta Mester, who resigned as president of the Cleveland Fed, said that Christopher Waller and Michelle Bowman made compelling arguments for easing monetary policy. However, they are now seen as puppets of the US administration. Donald Trump is calling on the Fed to cut rates by at least 50 bps. The US leader claims that the central bank should listen to someone as smart as him.
US Job Growth
Source: Bloomberg.
It is expected that Waller and Bowman, as well as the newly appointed FOMC member Stephen Miran, will vote for a larger cut than 25 bps. Notably, both candidates for the role of the new Fed Chair were right. Rates should have been cut earlier. The US labor market is cooling rapidly: while employment grew by an average of 150,000 in the three months leading up to the July FOMC meeting, this figure was then revised to 96,000. It now stands at 29,000.
It no longer matters what caused this: whether it was excessively high rates, anti-immigration policies, or the US administration’s tariffs. The Fed has to work with the data it has. The markets are confident that the cycle of monetary expansion will resume and expect borrowing costs to fall by 150 bps to 3% in 2025–2026.
Market Expectations for Fed Interest Rate
Source: Wall Street Journal.
However, in this case, real interest rates on debt, assuming inflation remains at current levels or rises slightly, could enter negative territory. This is typical of recessions, not periods of rapid economic growth. The US administration and Donald Trump, who is calling for a sharp cut in the federal funds rate by 300 bpd to 1.5%, should be careful with their aspirations.
Markets are preparing for an entertaining show. Whether the FOMC meeting will be a drama, a comedy, or perhaps a beauty contest remains to be seen. Ahead of the event, the euro has soared to a four-year high against the US dollar and recorded its best nine-month performance since the beginning of the year in its history.
Weekly EURUSD Trading Plan
Long positions on the EURUSD pair are still relevant. The first of the two previously announced target levels of 1.182 and 1.194 has been reached, and the second one is within sight. Therefore, long trades on the major currency pair can be opened and increased.
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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