US Dollar Post Gains Amid Fading Rate Cut Bets. Forecast as of 17.11.2025
Tariffs are likely to spur inflation and force the Fed to keep interest rates elevated. You may have heard this statement at the onset of 2025, when the US dollar strengthened due to expectations of sweeping tariffs. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US administration is lowering tariffs.
- FOMC hawks are outnumbering doves.
- The odds of a Fed rate hike in December have fallen below 50%.
- Long trades on the EUR/USD pair can be opened above 1.161.
Weekly US Dollar Fundamental Forecast
Beef prices hitting record highs and ground roasted coffee jumping from $6.47 per pound a year ago to $9.14 forced the US to cut tariffs on these and other agricultural and food products. If the surge in import duties on Liberation Day triggered a fall in the USD index, then their reduction should, in theory, have the opposite effect. As a result, the EUR/USD pair has retreated.
In fact, the worst-case scenario is unfolding. After Donald Trump returned to the White House, there was much talk that tariffs are pro-inflationary and will force the Fed to keep rates high. This will lead to a strengthening of the US dollar. In fact, the greenback weakened as the risk of a slowdown in GDP increased, with Americans shouldering the majority of the cost of US tariffs.
Now the markets are returning to the end of 2024 – beginning of 2025. More and more FOMC members are concerned about inflation. Hawkish rhetoric is becoming more frequent and stronger, which has lowered the chances of a federal funds rate cut in December to less than 50%.
Dovish and Hawkish Fed Statements
Source: Bloomberg.
For a week, the US dollar remained stable despite a decline in the likelihood of ongoing monetary expansion at year-end, as carry traders closed their positions amid rising volatility, stock index corrections, and a deterioration in global risk appetite. The greenback has historically been used as a yield currency, and the retreat of carry traders from the market put pressure on EUR/USD bears. However, it is important to remember that nothing is permanent. The foreign exchange market is beginning to pencil in the reduced likelihood of a Fed rate hike in December, which is beneficial to the USD index.
The same can be said about investors shifting away from hedging strategies. According to a MillTech survey of 250 companies, the risk hedging ratio decreased from 57% in the second quarter to 46% in the third quarter. The degree of trading uncertainty has fallen, and the need to sell US dollars on the futures market has also decreased.
FX Risk Hedging Among UK And US Firms
Source: Bloomberg.
Meanwhile, the tariff reduction may accelerate inflation. According to UBS, the Trump administration’s decision will likely reinforce the perception among Americans that they are the ones bearing the financial burden of import duties. As a result, inflation expectations will rise, allowing retailers to elevate their prices even further.
Weekly EURUSD Trading Plan
If the EUR/USD pair drops below the support level of 1.161, it will be cause for alarm. There is no need to panic, however, as only a fresh batch of data will allow the pair to find its direction. For now, it is better to refrain from entering the market or gradually buy the euro if the pair returns above the key level. The strategy relies on the assumption that the official statistics will confirm weak alternative labor market data.
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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