Greenback Goes Through Five Stages of Accepting Inevitable. Forecast as of 26.12.2025 | LiteFinance
In 2025, the US dollar experienced its worst performance since 2017, but it did not fall evenly. The first half of the year saw a sharp decline, followed by a rebound and slight recovery. Let’s discuss the reasons behind this trend and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Disappointment set the stage for the US dollar’s collapse.
- The Fed helped the USD index recover.
- In December, markets accepted the inevitable.
- The weakness of the US economy provides an opportunity to buy the euro with a target of 1.2.
Quarterly US Dollar Fundamental Forecast
The US dollar lost about 10% in 2025 and is on track for its worst performance in eight years. At first glance, it seems like a coincidence that 2017 was the first year of Donald Trump’s previous presidential term. However, if you look closer, you will see a definite pattern. Both then and now, the US leader was pretty clear about his plans to weaken the greenback, cut interest rates, and reshape international trade.
US Dollar Performance
Source: Bloomberg.
Against this backdrop, the USD index’s decline is inevitable. Like any inevitable event, the US dollar went through five key stages. The first, denial, began in January and lasted until Liberation Day in the United States. Investors ceased to believe in the greenback’s bright future, as they had done after Donald Trump’s election victory. At that time, they believed that it would grow thanks to inflation driven by tariffs. This would force the Fed to keep interest rates high, driving the EUR/USD pair down.
Then, in April, anger followed. Import duties proved so extensive that investors realized they were more harmful to the US economy than to the rest of the world. The tariffs would be absorbed by US companies. As a result, the dollar sell-off gained momentum.
US Dollar’s Key Milestones
Source: Financial Times.
The third stage, bargaining, began immediately after the federal funds rate cut in September. By that point, the USD index had already lost more than 12.5% from its January highs and rose unexpectedly in response to the Fed’s monetary policy easing. The “buy the euro on rumors, sell on the news” principle was also a factor, as were talks of a Fed pause. US dollar bulls regained their spirits and staged a rebound. This was especially true given that the greenback had responded to October’s sharp rise in borrowing costs with growth.
The November depression came from the realization that the USD index was unable to move higher. The greenback’s main weakness, in the form of divergence between the Fed’s and the ECB’s monetary policies, became apparent.
December was a month of acceptance. The euro’s seasonal strength in the first month of winter was compounded by the realization that the European Central Bank had ended its monetary policy easing cycle, while the Fed would continue easing. Moreover, the pace of the federal funds rate reduction depends not only on data but also on the FOMC’s lineup. The latter, in turn, depends on Donald Trump.
US Dollar Trends During Trump’s Presidency
Source: Reuters.
Everything has returned to square one. The US dollar weakened predictably during the first years of Trump’s presidency. However, there is one caveat. If history repeats itself, the greenback is not as hopeless as one might think.
Quarterly EURUSD Trading Plan
The greenback’s future will be shaped by signals about the US economy. If the economy is weak, the EUR/USD pair could climb to 1.2 in the first quarter. If the opposite is true, the pair will likely drop to 1.16.
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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