Greenback Weakens on Concern Over Fed Independence. Forecast as of 29.08.2025
Had the Fed known about the weak employment in May and June, it surely would have cut rates at the July FOMC meeting. Resuming the cycle in September could suggest an admission of error. Will the US central bank do it? Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The “Sell Europe” strategy is not working.
- US GDP accelerated by 3.3% in Q2.
- The Fed does not want to admit its mistakes.
- Long trades on the EURUSD pair can be increased on a breakout of 1.17.
Weekly US Dollar Fundamental Forecast
The political crisis in France has not caused investors to abandon European assets, and the stability of the US economy has been confirmed. Additionally, the strong pressure from the US administration on the Fed could lead to the opposite result. Lowering rates would be an admission of past mistakes, which no one likes to do. The euro and then the dollar have been shaken, sending the EURUSD pair on a rollercoaster ride.
Goldman Sachs, Citigroup, and JPMorgan Asset Management believe the French contagion will not spread to the rest of Europe. Unlike last year’s events, which involved the extraordinary elections to the National Assembly and the resignation of François Barnier’s government, current events are unfolding against the backdrop of Germany’s resumption of its leadership role. Friedrich Merz’s fiscal stimulus measures could offset France’s crisis. As a result, European assets are expected to continue outperforming US assets, leading to increased capital inflows into Europe and a likely surge in the EURUSD pair.
Stoxx 600 vs. S&P 500
Source: Bloomberg.
The major currency pair will likely appreciate against a weaker US dollar. At the same time, the faster growth of US GDP in the second quarter — not 3%, but 3.3% — is a thorn in the side of FOMC officials who support resuming the cycle of monetary expansion. This is especially true since business investment was at the heart of the economic acceleration. Between April and June, the increase was 5.7%, not the 1.9% indicated in the initial report.
US GDP and Business Investment
Source: Bloomberg.
According to former Federal Reserve Bank of New York President William Dudley, the Fed may resist pressure from the US administration and not cut rates, in part because of its unwillingness to admit mistakes. Had the central bank been aware of the significant revision to the May–June employment numbers in July, it would have undoubtedly loosened monetary policy.
Christopher Waller believes the Fed should cut rates in September, not by 50 basis points, as Treasury Secretary Scott Bessent is hinting at, but by 25 basis points. Waller is the leading candidate for Fed Chair after Jerome Powell’s term ends in 2026. His rhetoric is less dovish than that of the US president, which makes markets doubt that the fed funds rate will fall by 300 basis points. That is the way Donald Trump would like it.
Nevertheless, the Fed is set to loosen monetary policy in September. Rates are still high, which limits the growth of the US economy. The risk of a significant slowdown in the labor market is rising, and inflation expectations are anchored. These factors are enough to resume the cycle. The anticipation of this event supports EURUSD bulls.
Weekly EURUSD Trading Plan
The US labor market report for August will be crucial. Low employment forecasts will drive the EURUSD pair higher. Meanwhile, a breakout of the resistance level of 1.17 will allow traders to open long positions.
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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