A batch of disappointing US economic data and growing market expectations of aggressive monetary expansion under the new Fed chair allowed the EUR/USD pair to recover. Let's discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Trump will nominate a new Fed chair by Christmas.
- Kevin Hassett's chances of getting the post have increased.
- The US economy is showing signs of weakness.
- Long trades on the EUR/USD pair can be considered with targets of 1.17 and 1.175.
Weekly US Dollar Fundamental Forecast
Does it matter to financial markets who becomes the new Fed chair? Judging by the US dollar's decline in response to Bloomberg's report on Kevin Hassett's imminent appointment as head of the central bank, it does. The greenback remained remarkably stable amid growing expectations of a December cut to 81%, but as soon as the odds rose to 85%, the EUR/USD pair surged.
Treasury Secretary Scott Bessent's statement that Donald Trump will select the next Fed chair by Christmas, coupled with the growing likelihood that the National Economic Council director will take office, dealt a blow to the US dollar. Polymarket estimates Kevin Hassett's chances of victory at 57%, while Kalshi gives him 56%.
Candidates to Replace Powell as Fed Chair
Source: Bloomberg.
According to TJM Institutional Services, the head of the central bank ultimately gets what he wants unless there is a strong argument otherwise. Kevin Hassett's words that he intends to serve his people and his president suggest that the Fed will do what Donald Trump wants: trim interest rates to 1% to boost the economy. What happens to it after the US president's term expires is no longer important.
Before the rumors about the new Fed chair, investors believed that the central bank would follow a cut-and-hold path; their opinion then changed. The futures market lowered the target range for the federal funds rate to 2.75%. Notably, the FOMC's September forecast was 3.75%. This gap means that at one of the Committee's meetings in 2026, there could be a 50-basis-point cut. If the new Fed chair is similar to Stephen Muran, that would not be unexpected.
Market Expectations for Fed Funds Rate
Source: Bloomberg.
A series of weak US economic reports fueled the EUR/USD rally. Retail sales in September were disappointing, US consumer confidence fell to a seven-month low, and ADP reported a larger decline in private sector employment than in the previous reporting period. Against this backdrop, 10-year Treasury yields plunged below 4% for the first time in nearly a month, and the US dollar weakened.
Eventually, the market's view that the Fed would cut rates in December and then pause in January was excessively optimistic. The central bank depends on data, and if the statistics deteriorate, it will have no choice but to continue the cycle.
Weekly EURUSD Trading Plan
Long positions on the EUR/USD pair, formed on a decline to 1.149 and built up at 1.1535, represent a sound trading strategy now. The correction is exhausted, so traders can employ a buy-and-hold strategy with the targets of 1.17 and 1.175. Notably, the pair can climb significantly higher.
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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