The hawkish sentiment expressed in the FOMC minutes, along with the absence of the October employment report, has lowered the likelihood of a December federal funds rate cut to 33%. As a result, EUR/USD bears have pushed the pair lower. Let's discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Hawks dominate within the Fed.
- The chances of a rate cut in December have fallen sharply.
- Donald Trump has threatened to fire everyone.
- Long positions on the EUR/USD pair can be opened on a rebound from 1.149.
Weekly US Dollar Fundamental Forecast
Investors focused on the hawkish sentiment expressed in the October Federal Open Market Committee (FOMC) meeting minutes. In their view, Fed officials should have convinced the market that lowering the federal funds rate in December was the wrong decision. As it turned out, this was indeed the case. Furthermore, the signals proved unexpectedly robust, preventing the EUR/USD pair from rising further.
Several non-voting FOMC members have expressed disagreement with the October easing of monetary policy. Some of those who supported the decision to cut rates had doubts. Many officials deemed the December cut to be ill-advised. Notably, these members outnumbered those who considered it possible to continue the cycle at the end of 2025.
Market Expectations for Fed Rate Cut in December
Source: Bloomberg.
Hawks clearly prevailed over doves. Coupled with the BLS announcement that the October US employment report would not be available, this reduced the chances of a federal funds rate cut from 46% to 33%, so EUR/USD bears are poised to benefit from this development.
The US dollar strengthened amid a recovery in US stock indices, which rebounded from their swing lows, amid Nvidia's robust third-quarter financial report. Investors had confidence in the world's largest company, believing it had stabilized the market. However, it is unlikely that the S&P 500 will recover swiftly and reinforce its uptrend. Market volatility will likely continue to increase, which is unfavorable for the US dollar.
According to Goldman Sachs, investors should pay close attention to the correlation between the USD index and the VIX. Over the past five years, there has been an inverse correlation between the US dollar and the fear index. However, in 2025, due to the uncertainty surrounding the US policy, the greenback lost its status as a safe-haven currency. It is regarded as a risky asset, so increased stock market volatility leads to its decline and vice versa.
US Dollar Spot Index and VIX Index
Source: Bloomberg.
The ongoing decline in the EUR/USD pair is nothing more than a correction. In the minutes of the October FOMC meeting, officials considered a reduction in the federal funds rate after December to be appropriate. The futures market estimates the chances of a January cut at 65%, including a 50 bp cut at 15%. Notably, the odds have changed little since the publication of the FOMC minutes.
In addition, pressure from the US administration on the Fed is mounting again. Dissatisfied with the central bank, Donald Trump has promised to fire not only Jerome Powell but also Scott Bessent, who supported him. With the negative consequences of the shutdown and the Supreme Court's cancellation of tariffs for the US economy, the outlook for the greenback is definitely bearish.
Weekly EURUSD Trading Plan
If the pullback occurs, it would be an excellent opportunity to open long positions on the EUR/USD pair. If the employment figures are close to or better than expected, the decline will continue, but if the euro rebounds from 1.149 or returns above 1.1525, long positions can be considered.
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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