US Dollar Drifts Lower Ahead Of Q3 GDP Data. Forecast as of 22.12.2025 | LiteFinance
While the US economy is growing, the job market is cooling down, and inflation is losing steam, the Fed can afford to cut rates. However, the central bank plans to maintain its pause until spring. How will this affect the EUR/USD pair? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- US GDP and unemployment are rising.
- The root causes lie in tariffs and AI.
- The Fed’s prolonged pause is helping the US dollar.
- Short trades on the EUR/USD pair can be opened below 1.17.
Weekly US Dollar Fundamental Forecast
The world of finance is full of contradictions. Unemployment can rise even without a recession, but when it hits a four-year high while the economy is at full speed, many are taken aback. Bloomberg analysts forecast US GDP growth of 3.2% in the third quarter, while the Atlanta Fed’s leading indicator points to a higher figure of 3.5%. Against this backdrop, how can the EUR/USD pair avoid falling?
A strong economy means a strong currency. The strength of the US economy in 2025, at first glance, paradoxically coincided with a sharp cooling of the labor market. Employment has replaced inflation as the biggest risk to financial markets in 2026. Investors are turning a blind eye to CPI figures. The Fed is prioritizing the labor-market side of its mandate. It causes fear, and people tend to fear what they do not understand.
US Employment Change
Source: Wall Street Journal.
In fact, everything is crystal clear. Previously, it was believed that tariffs would lead to higher inflation. However, American companies have absorbed them by cutting costs and laying off employees. Another factor contributing to the divergence between GDP and the labor market is the rise in productivity enabled by artificial intelligence.
What does this mean for the EUR/USD pair? As long as this mix of falling employment, a strong economy, and slowing inflation continues, the Fed can lower rates without a second thought. However, if any component of this equation changes, the central bank’s views will change as well. So far, it seems to be putting the monetary expansion cycle on hold.
According to New York Fed President John Williams, the Fed feels comfortable given the rate cuts already implemented. His colleague from the Cleveland Fed, Beth Hammack, believes that nothing should be changed, at least until spring. She took the latest inflation figures from the BLS with a grain of salt and believes that it is necessary to wait for new data.
Central Bank Policy Rates
Source: Wall Street Journal.
If the Fed keeps the federal funds rate at its current level until March, as the futures market expects, and the ECB has completed its monetary policy easing cycle, the divergence will likely persist for at least a couple of months. Over this time horizon, the US dollar may strengthen against the euro.
The reaction of EUR/USD quotes to the S&P 500’s Christmas rally will also be important. Will it happen at all, and will the greenback, which has lost its status as a safe-haven asset, rise?
Weekly EURUSD Trading Plan
In my opinion, if the EUR/USD pair falls below 1.17, one may close long positions established near this level and switch to short-term selling. If bulls manage to keep the price above the key support level, the pair will likely consolidate.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
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