The Fed will likely pause its monetary expansion cycle after September due to the statistics that favor Donald Trump. This will undoubtedly revive investor confidence in the US dollar. Let's discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The BLS will provide figures that are convenient for the US administration.
- Strong data will cause the Fed to hit the brakes.
- Market disappointment will strengthen the US dollar.
- A rebound from 1.1575 and 1.1545 will offer a buy signal for the EURUSD pair.
Weekly US Dollar Fundamental Forecast
Donald Trump views the US economy as a business, and he knows that the president's business must thrive. An unusual agreement with NVIDIA to transfer 15% of chip sales revenue in China to the United States, tariffs for access to the US market, and intentions to distribute more than $1 trillion in investments from Japan and the EU are signs of state capitalism, forcing investors to seek better opportunities elsewhere.
The US is rapidly becoming China's mirror image, despite the prevailing view just a few years ago that China would inevitably resemble the United States. Extending the current tariffs on Asia's largest economy until November is part of Donald Trump's business strategy. The US President asserts that the American economy is thriving and that the new head of the Bureau of Labor Statistics (BLS) will guarantee the accuracy of published figures.
I have one question: If the new head of the Bureau of Labor Statistics, EJ Antoni, paints a rosy picture, how will the Fed lower interest rates? The labor market is strong, inflation is slowing down, and the Fed is easing monetary policy. Paradoxically, it draws parallels with Turkey, where Recep Erdogan forced the central bank to lower rates, supposedly to fight usurers. The result speaks for itself: the country faced a devastating currency crisis.
US Inflation Change
Source: Wall Street Journal.
The BLS may conceal the accelerating inflation. However, this time is different. The new head of the data provider has not yet taken office. The July figures will likely be correct. Consumer prices are rising rapidly, with an increase from 2.7% to 2.8%, and core CPI is soaring from 2.9% to 3.1%. This confirms the looming threat of stagflation for the US economy. This is extremely negative for stocks. A fall in the S&P 500 index will strengthen the dollar's position as a safe-haven asset, and investors will likely return to the "Sell America" strategy again.
Meanwhile, the Fed is not abandoning the idea of lowering rates in September. If Donald Trump's plan goes as expected, the central bank will make three cuts in 2025. The EURUSD pair is set to surge in response to Bloomberg experts' forecast that the ECB will conclude its monetary expansion cycle in December at 1.75%. The US president's decision to cut off the branch he was sitting on was a grave misstep.
Forecasts for ECB Deposit Rate
Source: Bloomberg.
The new BLS head will release strong employment data that will halt the Fed's monetary expansion cycle after September. Markets are expecting more cuts, and they will be disappointed. Investors will return to the US dollar. Against this backdrop, the major currency pair may fall into a consolidation trap.
Weekly EURUSD Trading Plan
However, the release of US inflation data is currently in the spotlight. Higher actual data will drag the EURUSD pair towards 1.1575 and 1.1555. A rebound from these levels will give a signal to open long trades. A slowdown in CPI will create an opportunity to buy the euro at the market price.
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.
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