Where Is the US Dollar Headed? Forecast as of 31.12.2025 | LiteFinance
The US dollar is on track for its weakest performance since 2017. Its outlook for 2026 remains bearish. That said, a pause in the Federal Reserve’s monetary easing cycle gives EUR/USD bears an opportunity to push back. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Jerome Powell is in charge of the Federal Reserve.
- Replacing the Fed chair would bring little benefit for Trump.
- The US dollar faces downside risks in 2026.
- Short trades in EUR/USD opened at 1.1795 should be held.
Weekly US Dollar Fundamental Forecast
Donald Trump may end up trading one problem for another. The US president wants to appoint a Fed chair who would openly advocate cutting the federal funds rate. He is pressing for the current central bank chief not only to step down as chair but to leave the FOMC entirely. Ironically, it was under Jerome Powell that the Fed loosened monetary policy in December and is widely expected to do so again in October. His exit would remove one of the more dovish voices on the Committee.
The minutes from the final FOMC meeting of 2025 highlighted not only the well-known divisions within the Committee, but also Jerome Powell’s influence. The Fed could easily have kept rates unchanged in December if not for the chair. Six of the nineteen members voted against easing monetary policy, while many of the others were hesitant. Some warned that a rate cut could be misinterpreted by markets as a signal that inflation was no longer a priority for the Federal Reserve.
US Dollar Annual Change
Source: Financial Times.
Donald Trump wants to appoint a loyal figure as Fed chair. Back in 2017, he selected Jerome Powell, a relatively low-key candidate, to replace Janet Yellen. Trump expected Powell to be easy to influence. However, growing pressure from the White House on the Fed instead undermined confidence in the institution and became one of the factors behind the US dollar index’s decline during the first year of Trump’s presidency.
G10 Currency Performance in 2025
Source: Reuters.
Investors expect the US dollar’s downtrend to continue in 2026. Central banks are moving in different directions. The Fed continues to ease monetary policy. At the same time, other major central banks are keeping rates unchanged or are preparing to raise them. As a result, Wall Street banks expect the EUR/USD pair to rise to 1.20 by the end of next year.
Supporters of the US dollar are counting on faster economic growth driven by large investments in artificial intelligence and the expectations of major tax cuts. This, in their view, will limit the Fed’s ability to ease monetary policy.
In the short term, the US dollar is strengthening because the Fed has not signaled a clear next step. It has paused its easing cycle. The European Central Bank is also taking a wait-and-see approach. As a result, the interest rate gap between the US and Europe continues to support the dollar.
Weekly EURUSD Trading Plan
In the absence of new US economic data, the EUR/USD pair risks falling in a correction as the yield spread between US and German bonds remains wide. Thus, consider holding the short trades initiated at 1.1795 open.
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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