Forex analytics. The dollar is defeated by the wisdom of the market – ForexNews.PRO
Buy while the blood is flowing. The war in Venezuela was avoided, but the kidnapping of its president was enough for fearful investors to rush to safe havens, and the smart ones bought out the failure in risky assets. In the end, it wasn’t fear that won, but intelligence. The US dollar has been on a roller coaster ride. The temporary support from geopolitics has not changed the attitude of speculators towards it. They have been holding the largest net greenback shorts since July.
The attack of the “bulls” on EURUSD was provoked not only by the exit of investors from safe havens. The pressure on the US dollar was created by disappointing statistics on business activity in the manufacturing sector, which collapsed to a 14-month bottom, and Neel Kashkari’s dovish comments. The president of the Federal Reserve Bank of Minneapolis expressed his concern about the potential acceleration of unemployment.
Curiously, this combination of weak manufacturing and a deteriorating labor market may be the result of U.S. tariffs. Before their introduction on America’s Liberation Day, investors were confident that import duties would accelerate inflation and slow down international trade. In fact, the latter is likely to have grown by 7% in 2025 and reached $35 trillion for the first time in history. Prices, on the contrary, continue to cool down.
In fact, this should not be surprising. According to research by the Federal Reserve Bank of San Francisco, previous cases of tariff increases from 1886 to 2017 by 1 percentage point slowed inflation by 0.6 percentage points, and the rise in import duties went hand in hand with rising unemployment. The resulting uncertainty forced businesses to lay off employees in order to optimize costs. The main reason for the decline in price growth was the weakness of domestic demand.
History seems to be repeating itself. Today, there is the same increase in unemployment and a slowdown in inflation due to the cooling of the labor market. Hats off to the wisdom of the market and Christopher Waller. His concept of temporary price increases due to lower employment growth led to three preventive cuts in the federal funds rate in 2025.
The market proved its wisdom earlier when, after the Day of America’s Liberation, the US dollar began to sell. Before that, everyone was sure that tariffs would accelerate CPI and PCE and bought greenbacks based on expectations that the Fed would keep rates high. It becomes clear why the Fed is more concerned about the labor market than inflation. Its further cooling in December will raise the chances of monetary expansion and weaken the dollar.
