US Dollar Faces Triple Threat. Forecast as of 03.12.2025
A dove in the Fed chair is hardly the only downside for the US dollar. The Supreme Court may cancel tariffs, the Bank of Japan may increase rates, and the greenback tends to weaken in December. Let’s discuss these topics and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The new Fed chair will be appointed in early 2026.
- The split within the FOMC is helping Donald Trump.
- The Supreme Court’s decision to cancel tariffs will harm the US dollar.
- Long positions can be considered with targets of 1.17 and 1.175.
Weekly US Dollar Fundamental Forecast
As a rule, bears hibernate in winter. However, in the Forex market, US dollar bears come out of their dens. Standard Bank warns of a triple blow to the greenback due to the new Fed chair, the Supreme Court’s cancellation of tariffs, and the Bank of Japan’s tightening of monetary policy. Deutsche Bank adds a seasonal factor to this. In December, the US currency usually weakens. The bank also forecasts a 2% decline in the USD index by the end of 2025.
Although Donald Trump has said he will name the new Fed chair at the beginning of the year rather than around Christmas, the choice appears to have already been made. Vice President JD Vance has canceled interviews with the three most likely candidates: Christopher Waller, Kevin Warsh, and Kevin Hassett. The prediction markets believe that the latter will become the new head of the US regulator.
FOMC Members’ Forecasts for Fed Funds Rate
Source: Bloomberg.
Can the new dove accelerate monetary policy easing, as the Trump administration desires? If FOMC members were unanimous, it would be unlikely. However, the division is now greater than ever. Donald Trump has adopted the “divide and rule” strategy, and the markets are penciling in a reduction in the federal funds rate to below 3%. This forecast is being made by officials who support aggressive monetary expansion.
According to BNP Paribas, the Supreme Court’s removal of tariffs will be harmful to the US dollar. The elimination of an important source of revenue will raise questions about the sustainability of the deficit. Investors will demand a higher premium for the risk of holding US dollar-denominated assets. Capital outflows will cause the USD index to fall. The US administration will likely manage to mitigate the situation by replacing sweeping import duties with other levies. However, this will require time.
BNP Paribas continues to believe that the EURUSD pair will continue its upward trend due to the narrowing economic growth differential between the US and the eurozone. Nevertheless, the bank has lowered its forecast for the euro from 1.22 to 1.2, citing the greater resilience of the US economy.
OECD Forecasts for Global GDP
Source: Bloomberg.
Indeed, the OECD has raised its estimate for US GDP growth from 1.8% to 2% in 2025 and from 1.5% to 1.7% in 2026. The main reason cited is the boom in AI investments. The forecast for the eurozone was also revised upwards by 0.2% to 1.2% in 2026. It seems that there will be no reduction in the divergence in economic growth. This limits the potential for a rally in EUR/USD quotes.
Weekly EURUSD Trading Plan
In 2026, the pair may post modest gains, but in December, bulls will likely accelerate the uptrend. In this connection, long positions on the EUR/USD pair opened at 1.149 and 1.1535 and built up above 1.16 can be maintained with targets of 1.17 and 1.175.
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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