empty
21.03.2025 12:45 AM
The Dollar Takes Back Its Own

Markets shoot first and ask questions later. Upon hearing Jerome Powell's assurance that the Federal Reserve had everything under control and that there would be no recession, U.S. stock indices rose. Along with them, EUR/USD quotes climbed as well. As the currency of optimists, the euro gained an advantage due to an improvement in global risk appetite—an effect that, unfortunately, won't last long. Alongside the decline, another bad sign for the main currency pair is stagflation, precisely the scenario the Fed has outlined.

The long-term federal funds rate forecasts remained unchanged. The FOMC expects two rate cuts in 2025, another two in 2026, and one more in 2027. The total scale of monetary easing is estimated at 125 basis points. At the same time, Jerome Powell called the inflation triggered by tariffs temporary or transitory. The Fed can afford not to intervene in this process—prices will come down on their own over time.

Fed Rate Trends and Forecasts

This image is no longer relevant

Markets calmed down, but within a day, they recalled the events of 2021. Back then, the Fed also described high inflation in the U.S. as transitory. The argument was that the surge in economic activity following the COVID-19 pandemic would subside, leading to a drop in consumer prices. However, when CPI surged to nearly 10% in 2022, Powell and his colleagues swiftly changed their stance. They launched the most aggressive monetary tightening in four decades, which enabled the U.S. dollar to win the G10 currency race in 2024 and remain one of its leaders in 2023.

History is repeating itself. There is nothing more permanent than the temporary. Tariffs risk pushing consumer prices to new highs, forcing the Fed to abandon its forecasts. This could result in maintaining the federal funds rate at 4.5% until the end of 2025, as the OECD and Fitch Ratings urged. If that happens, after its sharp rally in the first two decades of March, EUR/USD risks plunging off a cliff.

Especially since the U.S. and the European Union stand on the brink of a trade war by imposing tariffs on steel and aluminum, the White House forced Brussels to respond. However, the retaliation did not sit well with Donald Trump. The Republican threatened to introduce a 200% tariff on European alcoholic imports. In response, the EU backed down, postponing tariffs on U.S. whiskey imports until mid-April—ostensibly to allow negotiations aimed at preventing economic pain for both sides.

This image is no longer relevant

I fear that Trump is not concerned with the EU's maneuvering. The U.S. president has declared April 2 as America's Liberation Day, hinting at sweeping reciprocal tariffs. Europe is unlikely to emerge unscathed.

From a technical standpoint, a reversal pattern called Anti-Turtles has been activated on the EUR/USD daily chart. Short positions on the euro against the U.S. dollar, formed from the 1.089 level, should be maintained and periodically increased. Target levels are set at 1.0805 and 1.0720.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

The "Big, Beautiful Bill" vs. Import Tariffs

At present, Donald Trump is focused on promoting what he calls the "Big, Beautiful Law." In the trade war, Trump has done everything he could—he imposed tariffs, then lowered them

Chin Zhao 00:23 2025-05-23 UTC+2

The Fed Is Not Ready to Act Before the Second Half of the Year

In recent reviews, I have repeatedly addressed the topic of the Federal Reserve's monetary policy, market expectations, and the reality we all live in. I believe the market's expectations

Chin Zhao 00:23 2025-05-23 UTC+2

Canadian Inflation Resumed Growth. USD/CAD Overview

Core inflation in April unexpectedly rose higher than forecast, rising from 2.2% to 2.5% year-over-year. Headline inflation slowed from 2.3% to 1.7%, slightly above the forecast. The decline in headline

Kuvat Raharjo 00:23 2025-05-23 UTC+2

The Dollar Keeps Moving Forward

The approval by the House of Representatives of what Donald Trump called a "big and beautiful" tax-cut bill, along with a rise in the U.S. composite PMI from 50.6

Marek Petkovich 18:16 2025-05-22 UTC+2

EUR/USD. Weak Euro, Weak Dollar

The three-day bullish rally in EUR/USD has come to an end: today the pair retreated into the 1.12 zone. However, the dollar is in no position to guarantee a sustained

Irina Manzenko 18:09 2025-05-22 UTC+2

RBA Turns Increasingly Dovish, Reducing Chances of AUD/USD Recovery

The RBA cut the interest rate by 25 basis points to 3.85% on Wednesday, in line with market expectations. At the concluding press conference, the RBA Governor acknowledged that

Kuvat Raharjo 12:26 2025-05-22 UTC+2

XAU/USD. Analysis and Forecast

Gold is retreating after reaching its highest level in nearly two weeks. This pullback lacks clear fundamental triggers and is likely to remain limited due to several supportive factors. Expectations

Irina Yanina 12:21 2025-05-22 UTC+2

NZD/USD. Analysis and Forecast

The NZD/USD pair is pulling back after reaching a weekly high around the 0.5965–0.5970 level and is currently trading near 0.5920, marking a new daily low. The release

Irina Yanina 12:18 2025-05-22 UTC+2

USD/CAD. Analysis and Forecast

The USD/CAD pair is encountering difficulties in its attempt to recover following an overnight rebound from the 1.3815–1.3810 level, indicating a continuation of the week-long downtrend. Oil prices are rebounding

Irina Yanina 12:12 2025-05-22 UTC+2

GBP/USD. Inflation, Road Tax, and the Outlook for a Northern Trend

The GBP/USD pair hit a new three-year high yesterday, reacting to a sharp spike in UK inflation. However, the significance of the inflation report should not be overstated

Irina Manzenko 11:58 2025-05-22 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.