US Dollar Strengthens Amid Stocks Rally. Forecast as of 12.11.2025
Due to the current high debt rates, the US dollar has been labeled a risky currency. Carry traders have adopted it as a key instrument in their transactions. As a result, when the S&P 500 index rises, the EUR/USD pair falls. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- A weak labor market has dragged the US dollar down.
- Rising stock indices helped the greenback.
- The rift within the Fed is escalating.
- Long positions on the EUR/USD pair can be considered above 1.154.
Weekly US Dollar Fundamental Forecast
The US economy is facing a period of uncertainty. However, when it appears that the US dollar has been forced into a challenging position, it often finds unexpected support. The recent surge in stock indices, which occurred following the release of disappointing private sector employment statistics from ADP, served to temper EURUSD bulls.
In light of the ongoing shutdown and the subsequent reduction in market volatility, the US dollar has become a high-risk currency, making it particularly advantageous for carry traders. Furthermore, according to estimates by Deutsche Bank, 80% of non-resident transactions involving US stocks are hedged. This indicator is at historically high levels. As a result, the S&P 500 rally is attracting capital to the US without selling the greenback to hedge currency risks. The EUR/USD exchange rate tends to decline when stock indices are rising.
US Labor Market Statistics
Source: Bloomberg.
The euro rose against the dollar above 1.16, driven by weak US non-farm payrolls data that fell short of expectations. The four-week average as of October 25 fell to 11,250. As a result, ADP observed that the labor market is facing headwinds in creating new jobs. Goldman Sachs forecasts a 50,000 reduction in October; data from other sources is disappointing, and 71% of Americans expect unemployment to rise, according to a University of Michigan survey. This is the lowest figure since records began in 2013.
When considering the adverse impact of the shutdown on the US economy, the dollar’s position appears highly vulnerable. According to estimates from the Congressional Budget Office, the government shutdown will reduce fourth-quarter GDP by 1.5 percentage points. Oxford Economics has estimated the figure to be 1 percentage point.
Despite this, the greenback has remained stable. After reviewing recent ADP data, markets have only slightly increased the likelihood of the Fed easing monetary policy. The indicator fluctuates between 62% and 67%. Investors believe the US regulator will not prioritize alternative data sources and will rely on official statistics.
Market Expectations for Fed Rate Trajectory
Source: Bloomberg.
The division within the FOMC is intensifying. This shift prompted Jerome Powell to question the market’s confidence in a December rate cut. Fed doves point to the weakness of the labor market, but they have no reliable data to support this claim. On the contrary, hawks emphasize the strength of consumer spending and persistently high inflation, and they advocate for a pause.
In this scenario, the most effective solution would be to implement a monetary policy easing in December, accompanied by a signal of a pause in January. However, the emergence of new data may bring about a shift in this outlook.
Weekly EURUSD Trading Plan
I do not think that the rally in stock indices will support the US dollar forever. The weakness of the US economy will become apparent sooner or later. Therefore, the primary strategy is to buy the EURUSD pair above 1.154.
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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