US Dollar Trades Lower As Trump Plans to Reshuffle FOMC. Forecast as of 27.08.2025
Markets have a strong memory. In April 2024, the political crisis in France led to a 2.5% decline in the euro. Between 2021 and 2023, the Turkish financial regulator lowered the key rate, which led to unprecedented inflationary pressures. Both events may provide valuable insights into the future trajectory of the EURUSD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The market reaction to Lisa Cook’s dismissal was muted.
- The political crisis in France is weighing on the euro.
- The US president wants to reshuffle the FOMC.
- Long positions can be opened if the EURUSD pair returns above 1.165.
Weekly US Dollar Fundamental Forecast
For the first time in the 111-year history of the US Federal Reserve, the US president has dismissed the FOMC governor. However, the market reaction has been rather subdued. The S&P 500 index is approaching a new record high, the US dollar remains stable, and Treasury yields are fluctuating without causing alarm. Investors believe that the central bank is already taking steps towards Donald Trump’s preferred course of action of lowering interest rates. However, in the case of the EURUSD pair, market passivity is not the only factor hindering the rally.
A political crisis has once again erupted in France. François Bayrou’s government faces the same potential pitfall as its predecessors: the possibility of a premature resignation. The prime minister is promoting a proposal to cut budget spending by €44 billion, which would reduce the deficit to 5.8% of GDP. This is nearly double the 3% requirement set by the EU, yet the opposition has voiced its disapproval. The situation could result in either the resignation of the government or early parliamentary elections.
Risks are increasing, assets are being divested, and the yield spread between French and German bonds could reach 100 basis points, a level not seen since the eurozone debt crisis in 2012. In April 2024, the EURUSD pair experienced a 2.5% decline amid similar market events. What are the prospects for the upcoming period?
French-German Bond Yield Spread
Source: Bloomberg.
The markets have a strong memory for such events. In addition, there is the matter of the situation with Turkey. In 2021, President Recep Tayyip Erdoğan decided to tackle inflation unconventionally—through monetary expansion. From the end of 2021 to May 2023, the key rate fell from 19% to 8.5%. The Consumer Price Index surged from 19% to 85%. In spring 2023, the head of state abandoned his delusional ideas and allowed the central bank to tighten monetary policy. Inflation was successfully curtailed, yet the lira remained devalued. Since the end of 2021, the USDTRY exchange rate has increased by more than fourfold.
The United States is pursuing a similar course of action. Donald Trump has fired FOMC member Lisa Cook, and the US administration is currently considering the potential leadership changes at the Federal Reserve Banks. These officials are not appointed by Congress, which has the potential to give rise to complaints. It is highly probable that appointees will be those who demonstrate loyalty to the US President. “We’ll have a majority very shortly,” the US leader said.
It is highly probable that, following the precedent set by Recep Erdoğan, Donald Trump will implement measures to combat high inflation, such as lowering interest rates. The consequences of this decision in Turkey are well-known. Notably, the United States is a developed country, but it acts as a developing country. When the president intervenes in monetary policy and demands a share in companies in exchange for the US administration’s assistance, it serves as a clear indication that the time has come to relocate to a more stable and predictable financial environment.
Weekly EURUSD Trading Plan
Although the US dollar’s reaction appears muted and rising political risks in France are weighing on the euro, the long-term outlook for the EURUSD pair remains bullish. A rebound from 1.15 and 1.155, or a return above 1.165, would give a signal to buy the major currency pair.
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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