Forex analytics. The dollar goes to the last stand – ForexNews.PRO
The Fed is going to cut the federal funds rate for the third time in 2025, and traders expect the US dollar to strengthen again. In September and October, the EURUSD fell in response to the easing of monetary policy due to the implementation of the “buy rumor, sell fact” principle and Jerome Powell’s hawkish comments. Is history repeating itself?
The futures market is 88% confident of a rate cut following the FOMC meeting on December 9-10, but it will be incredibly difficult for the Fed chairman to reach a compromise. At least five of the twelve voting Committee members expressed serious concerns about inflation. Goldman Sachs expects that this time there will be three dissenters: two will oppose cutting the cost of borrowing, one will support its reduction by 50 bps.
Investors are counting on a “hawkish” cut. However, it will not be easy for Jerome Powell to talk about a pause, because the Fed will have much more data on inflation and employment for December before January than it does now. However, the strengthening of the US dollar is possible through another channel. The updated FOMC forecasts may include only one act of monetary expansion, as in September. The futures market has increased the chances of such an outcome from 18% before Thanksgiving to the current 38%.
In fact, there is no certainty here either. What is the point of trusting the Committee’s estimates if its composition radically changes in 2026? Shadow Fed Chairman Kevin Hassett called long-term forecasting irresponsible, because the central bank’s verdicts depend on the data. And the data will probably change.
Thus, investors have no confidence in the “hawkish” cut, and they also have no confidence in the FOMC forecasts. And then there’s the White House muddying the waters. Treasury Secretary Scott Bessent said that the Fed chairman can lead the discussion, but in the end he has only one vote. Kevin Hassett claims that he will be guided by his opinion and will not succumb to political pressure. Should we expect aggressive monetary expansion and a fall in the USD index?
In my opinion, it’s worth it. No matter how many times the Fed cuts interest rates, the ECB may raise them in 2026. The divergence in monetary policy suggests the stability of the upward trend in EURUSD. However, anything can happen in the near future.
