The Dollar vs the Fed: Who’s Right This Time? Forecast as of 23.10.2025 | LiteFinance
Playing tag with the Fed is investors’ favorite pastime. However, rising US inflation suggests that the central bank might actually be right this time — and that’s good news for the dollar. Let’s explore it and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- FOMC forecasts may prove accurate.
- The market may have gotten ahead of itself.
- Lower volatility supports the dollar.
- Buying EURUSD only makes sense if the pair holds above 1.16.
Weekly Fundamental Forecast for Dollar
After the turmoil caused by tariffs and politics, markets are gradually calming down. That means investors can once again play their favorite game — “chasing the Fed.” The latest FOMC projections suggest two rate cuts in 2025 and another in 2026, while derivatives are pricing in five rate cuts. The fate of EURUSD depends on who turns out to be right — the Fed or the futures market.
Don’t play against the Fed. That rule is as old as the markets themselves, yet investors can’t resist testing it. They keep betting against the central bank, hoping their bets will pay off. Expectations of aggressive monetary easing weighed heavily on the US dollar before the policy cycle resumed, but at the end of October, it seems the Fed may come out on top. Reversal risks for the greenback are now tilted to the upside, and markets are repricing.
USD Risk Reversal Dynamics
Source: Bloomberg.
Investors are watching for the upcoming US inflation report. Consumer prices are expected to rise by 3.1% in September, the highest since May 2024. This alone may not stop the Fed from cutting rates in October or December, but it could make the central bank more cautious in 2026. If the Fed’s latest projections play out, markets and dollar bears will lose. So perhaps it’s time to reduce long positions in EURUSD.
Lower volatility also supports the dollar. In the past, it was the other way around as the greenback acted as a safe haven. However, the White House’s pressure on the Fed has eroded confidence, pushing investors to seek other safe havens. Consequently, over the past 60 days, the USD Index has traded within one standard deviation of its mean about 80% of the time. In early October, that figure even rose to 88% — the highest level since 2013.
Dollar Volatility Is Near Decade Lows
Source: Bloomberg.
According to Bank of America, the dollar’s consolidation is being driven by mixed factors. The second-longest government shutdown in history puts pressure on it, while budget troubles in France and the UK weigh on the euro and pound, and Japan’s leadership change drags down the yen. As a result, the greenback has stopped falling. And when the market doesn’t go where everyone expects, it usually moves in the opposite direction.
In my view, this is a classic “buy the rumor” situation. The dollar is rising on expectations of stronger inflation. Canadian CPI data, which exceeded forecasts, adds to that sentiment. If the US CPI figures come in close to expectations, a “sell the fact” reaction may follow, putting pressure on the greenback.
Weekly Trading Plan for EURUSD
The EURUSD pair’s inability to hold above 1.16 shows weakness among the bulls. Only a firm break above this level would be a signal to return to long positions. For now, it’s better to stay out of the market or even consider selling.
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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