US Dollar Holds Steady Amid Extraordinary Bearish Events. Forecast as of 26.09.2025
The correction in the EURUSD pair was initially influenced by selling on the news, followed by uncertainties surrounding the Fed’s rate cut in October and the closing of hedging positions. How deep will the correction be? The US labor market report will shed light on the matter. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US administration is struggling with the strengthening of the dollar.
- The rift within the Fed is buoying the greenback.
- The US economy is not as weak as it seems.
- The EURUSD pair can be purchased on a false breakout of 1.1645.
Weekly US Dollar Fundamental Forecast
At the end of September, the US dollar gained significant traction in the Forex market. However, it is unclear whether this news will be viewed favorably or unfavorably by Donald Trump, but does the Fed need a stronger dollar? A robust currency will temper inflationary pressures. However, tightening financial conditions is unlikely to be beneficial for the cooling US economy. Regardless of the circumstances, the EURUSD rate is declining.
The market’s initial reaction to the Fed’s rate reduction was characterized by profit-taking on long positions in the major currency pair. Over time, this turned into a correction. Speeches by FOMC officials that were perceived as hawkish, a revision of second-quarter GDP to 3.8%, and a drop in jobless claims to their lowest level since July served to strengthen the US dollar.
US GDP
Source: Wall Street Journal.
According to Kansas City Fed President Jeff Schmid, monetary policy is where it needs to be. His colleague from Chicago, Austan Goolsbee, believes that a premature rate cut is not necessary. The US regulator needs to wait for evidence of a cooling labor market, and there is no evidence yet. Moreover, the decline in unemployment claims suggests that employment is in a healthy state. If so, there is no need to ease monetary policy.
US Unemployment Claims
Source: Wall Street Journal.
According to Barclays, the resilience of the US dollar in the face of numerous threats, including the risks of the Fed losing its independence and the US economy freezing, indicates that fundamental support remains in place. The bank believes that tariffs are changing trading conditions. According to these conditions, the EURUSD pair should be trading at 1.3. In fact, the euro is priced lower. Capital flows into US securities are favoring the greenback.
Barclays has expressed skepticism regarding the extent to which these positions are hedged. This necessitates confidence in one’s own or a third-party currency, and this is not as easy as one might expect. The euro is facing headwinds due to political and geopolitical factors, as well as concerns regarding Germany’s fiscal stimulus measures. The yen is struggling due to the ongoing leadership battle within the LDP, and the pound is suffering from concerns regarding the new budget proposal.
Nevertheless, hedging does exist, and a pullback in the S&P 500 index has prompted its unwinding, which has boosted the US dollar. Despite robust GDP data and declining jobless claims, the futures market has slightly lowered the likelihood of a Fed rate hike in October from 94% to 89%. San Francisco Fed President Mary Daly believes that monetary expansion should continue in order to balance the risks.
Weekly EURUSD Trading Plan
The pullback in the EURUSD rate is expected to be relatively limited. In anticipation of the pivotal US labor market report for September, the major currency pair is poised to enter a period of consolidation within the 1.16–1.174 range. Conversely, a breakout of the support level of 1.1645 is likely to be false. If the pair returns above this level, it will create a favorable opportunity to purchase the euro.
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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