US Dollar Stages Comeback as US Economy Remains Resilient. Forecast as of 12.03.2025
Fears of a recession in the US economy accelerated capital flight from North America to Europe and boosted EURUSD quotes. But may investors have just taken these fears too seriously? Is it all so bad? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Donald Trump does not see a recession.
- The US will benefit from the return of manufacturing.
- The US economy is still strong.
- Short trades can be opened if the EURUSD pair falls below 1.089.
Weekly US Dollar Fundamental Forecast
While investors paint a gloomy picture of the US economy due to Donald Trump’s tariffs, the media has started to mention “recession” more, and the derivatives market has increased the scope of the Fed’s monetary expansion; the actual data suggests otherwise. The labor market remains strong, and inflation is slowing. The soft landing that US dollar bulls have been dreaming of. Has the EURUSD rally gone too far?
References to “Recession” in the Media
Source: Bloomberg.
In January, US job vacancies rose while layoffs fell, which, combined with a solid increase in employment, points to continued strength in the labor market. Bloomberg expects inflation to slow from 0.5% to 0.3% m/m in February, allowing the Fed to return to the monetary easing cycle. The derivatives market predicts an 80 bps decline in the fed funds rate by the end of 2025, up from 60 bps a week ago.
The fear that has gripped the financial markets is to blame. Donald Trump did not rule out the possibility of a recession, describing the current stage of the US economy as a transitional period. He dismissed the collapse of stock indices, even though he used them as a measure of his performance during his first presidential term. How can one not be frightened?
US Inflation Rate
Source: Bloomberg.
The decline in the S&P 500 prompted the president to recognize the need for recalibration of his approach. Trump attempted to ease tensions by suggesting that he anticipates a surge in the US economy. He does not anticipate a recession and is committed to revitalizing the economy. However, the manner in which he plans to achieve this remains unclear. During a meeting with prominent business leaders, Donald Trump stated that tariffs and associated budget revenues had not yielded the desired results. He stressed that victory would be achieved when manufacturing began to return to the United States.
Regarding the transition phase, White House officials attributed it to the shift from the challenges previously experienced under the Biden administration to the confidence that the new president is bringing with his substantial record. The ambiguity surrounding the president’s message has led to uncertainty, leaving observers grappling with the question of whether to place their trust in his words or his actions.
Such a rout in the markets is somewhat exaggerated. The US economy is not on the verge of a recession, and the scale of the Fed’s monetary expansion may be overstated. It remains to be seen whether Friedrich Merz can persuade the Greens to reform the fiscal brake. This ambiguity may compel investors to consider locking in their profits on long EURUSD positions.
Weekly EURUSD Trading Plan
The continued rally of the major currency pair hinges on two scenarios: a favorable outlook for Germany and a highly pessimistic outlook for the US. However, the likelihood of these scenarios unfolding remains low. A pullback in the EURUSD pair is a possibility. Against this backdrop, short-term short trades can be considered if the pair declines below 1.089.
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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