Greenback Retreats As Fed Rate Cut Remains on Table. Forecast as of 13.08.2025
The US job market is cooling, and soaring prices due to tariffs appear to be temporary. Therefore, the US administration is urging the Fed to cut rates. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- US inflation accelerated modestly in July.
- The number of doves in the FOMC is growing.
- The US administration is calling on the Fed to cut rates by 50 bps.
- If the EURUSD pair breaks through 1.17, it will prompt investors to increase their long trades.
Weekly US Dollar Fundamental Forecast
The slight uptick in US inflation in July did not pose a significant obstacle to the Fed’s decision to implement a monetary policy easing in September. In addition, Scott Bessent’s call for a 50-basis-point cut in the federal funds rate has forced EURUSD bears to retreat. The weak US dollar becomes relevant again.
US Inflation Change
Source: Wall Street Journal.
In July, consumer prices remained stable at 2.7%, while core inflation increased from 2.9% to 3.1%. Investors had come to believe that the Fed had control over these indicators. At the same time, the weakening of the labor market from May to July will likely prompt the US central bank to lower rates at its September meeting. The derivatives market has increased the probability of a rate cut from 86% to 91%. The probability of three acts of monetary expansion rose from 45% to 53%. Against this backdrop, the US dollar retreated.
Chances of Fed Rate Cut in September
Source: Wall Street Journal.
Treasury Secretary Scott Bessent has fueled the EURUSD rally. He believes that the Fed should consider a 50-basis-point cut, bringing the federal funds rate to 4% at the next FOMC meeting. In July, the US regulator opted against implementing a policy shift, and the labor market slowed. BlackRock also supported the idea of aggressive monetary expansion in September.
As a result, more Fed officials adopt a dovish stance. Richmond Fed President Thomas Barkin stated that tariffs may hinder the acceleration of inflation. Consumers are increasingly replacing beef with chicken. They are offsetting import duties on essential goods, and the cost of other goods is likely to remain stable. The current situation is markedly different from 2022, when Americans were enjoying significant financial stimulus. Their spending increased significantly, leading to a substantial rise in the CPI.
Markets are becoming increasingly convinced that the acceleration of inflation due to import duties is not a one-time event but a temporary process. In such conditions, the Fed must support the labor market by all means, including aggressive rate cuts.
It appears that Donald Trump’s strategy of reducing Treasury bond yields and weakening the US dollar is gaining traction. US tariffs have generated $28 billion in July and $135.7 billion since the start of the fiscal year in October. They contributed to the reduction of the budget deficit by 4%, reaching a total of $1.63 trillion over 10 months.
Customs Duties Collected from US Imports
Source: Wall Street Journal.
Weekly EURUSD Trading Plan
Markets do believe that the US president wants to weaken the US dollar. Long trades on the EURUSD pair, formed at 1.155 and increased at the market price against the backdrop of the US inflation report, can be kept open. A breakout of 1.17 will give a buy signal.
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.
