Trump Pushes US Dollar Into Pit of Problems. Forecast as of 16.05.2025
In his quest to reshape the world, Donald Trump has pushed the US dollar into a pit of structural problems. Perhaps, the decline of the US dollar is exactly what the US administration wants. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Data indicates a slowdown in US GDP growth.
- The Fed expects inflation to accelerate.
- The euro is rattled by EU-US trade negotiations.
- Trades on the EURUSD pair can be considered on a breakout of the 1.1165–1.1225 range.
Weekly US Dollar Fundamental Forecast
All things must eventually come to an end. The euphoria surrounding the US-China deal is beginning to fade, and a series of gloomy US economic data is reviving fears of recession, putting pressure on the US dollar. However, bulls are not yet able to take advantage of this. Negotiations between Washington and Brussels are just around the corner, and no one knows how they will end. Against this backdrop, consolidation would be the best-case scenario for the EURUSD pair.
The first decline in industrial production in six months, falling producer prices, and a significant slowdown in retail sales point to a cooling US economy. The derivatives market, which had previously doubted the two acts of monetary expansion, is now confident that the federal funds rate will fall from 4.5% to 4% by the end of 2025. Based on CPI and PPI figures, the personal consumption expenditure index slowed from 2.6% to 2.5% in April, but this is unlikely to prompt the Fed to resume its cycle of monetary expansion.
US Retail Sales
Source: Bloomberg.
According to Jerome Powell, inflation may be more volatile in the future than it was in the 2010s. The global economy may be entering a period of more frequent and potentially more persistent supply chain disruptions, which is a difficult problem for central banks. FOMC member Michael Barr said that tariff-related supply chain disruptions could slow GDP and spur inflation.
The Fed’s position is straightforward. It sees the current slowdown in PCE growth as a sign of economic cooling and expects the indicator to pick up amid higher tariffs. With this in mind, it is better to pause the monetary easing cycle, no matter how much Donald Trump pushes for rate cuts.
The restructuring of the international trading system initiated by the US President is leading to structural weakness in the US dollar. This is evidenced by the inverse correlation between Forex volatility and the USD index. For many years, the correlation was direct, but now markets are expecting a prolonged downward trend for the greenback and are increasing hedging transactions.
G7 Volatility Index and USD Index
Source: Bloomberg.
Societe Generale is confident that Donald Trump is in favor of a less expensive US dollar, while Danske Bank predicts a rally in the EURUSD pair to 1.2 within 12 months due to the structural weakness of the US currency. However, bulls are in no hurry to hasten events, as trade negotiations between the US and the European Union are looming. Washington demands greater access for US companies to the EU agricultural market and a reduction in non-tariff barriers. Brussels continues to adopt a defiant tone, but is it ready for a trade war?
Weekly EURUSD Trading Plan
Traders are advised to pay close attention and leverage the breakout of the resistance level of 1.1225 to open long trades on the EURUSD pair, adding them to the ones initiated at 1.1065. Conversely, a decline in the euro below 1.1165 could create a favorable opportunity to open short trades.
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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