US Dollar Slumps Amid Santa Claus Rally. Forecast as of 23.12.2025 | LiteFinance
Divergence in monetary policy between the ECB and the Fed, as well as a narrowing gap in GDP growth between the US and the eurozone, paint a bright future for the EUR/USD pair. In addition, the currency pair has historically performed strongly in December. Why not buy the euro? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- December is a seasonally strong month for the euro.
- If the Fed does not cut rates, the US will face a recession.
- The US dollar may deliver a surprise.
- Long positions on the EUR/USD pair can be opened with targets of 1.186.
Weekly US Dollar Fundamental Forecast
The euro is expected to post gains. So, why wait for a pullback when you can buy it at market price? FOMO, or fear of missing out, drove EUR/USD quotes higher amid rapidly rising US stock indices. December is a seasonally strong month not only for US equities, but also for the single currency. Why not take advantage of this opportunity?
Things never happen the same way twice, especially three times. Since 1950, the S&P 500 index has never missed the Santa Claus rally three times in a row. This happened in 2023 and 2024. In 2025, the US stock market is poised for rapid growth, with the euro, as the currency of optimists, following suit. Indeed, throughout the year, rumors circulated that the US administration’s policies, including threats to the Fed’s independence, had deprived the US dollar of its safe-haven status. However, by the end of December, markets seemed to have forgotten about Donald Trump. Monetary policy is now the dominant focus. Against this backdrop, the EUR/USD pair has skyrocketed.
S&P 500 Index Performance During Santa-Rally Period
Source: Wall Street Journal.
The medium-term outlook for the major currency pair looks clearly bullish. Even Isabel Schnabel’s statement that she allegedly did not talk about the need to raise deposit rates did not hinder the euro’s gains. Earlier, Schnabel praised the futures market for its forecasts of monetary policy tightening. Now she claims that the ECB is in a comfortable position. At the same time, the futures market’s confidence in a reduction in the federal funds rate in the spring is putting pressure on the US dollar. According to Stephen Miran, if the Fed does not resume monetary expansion, the US is doomed to fall into recession.
In a way, this makes sense because when the US economy is at its peak and overheating, the Fed usually kills the party by raising interest rates and keeping them high. As a result, the economic cycle ends in a downturn. This time, the US regulator has ensured a soft landing, but who knows what tomorrow will bring?
In 2022–2024, the USD index rose thanks to American exceptionalism. The US economy was head and shoulders above its counterparts. In 2025, the gap began to narrow thanks to the resilience of Asia and Europe to tariffs. In 2026, it is expected to narrow further, and the US dollar will likely continue to weaken.
USD Index Fluctuations During Trump’s Presidency
Source: Bloomberg.
However, as history shows, the greenback also weakened significantly at the beginning of Donald Trump’s first presidential term. However, it then recovered its losses. Notably, history can repeat itself this time. The acceleration of the US economy, thanks to AI and the Big and Beautiful Tax Cuts Act, will likely set the stage for a rally in the USD index.
Weekly EURUSD Trading Plan
EUR/USD bulls have managed to keep the price above 1.17. Long positions formed at this level can be maintained and increased with a target of 1.186.
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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