The US administration’s pressure on the Fed is having unintended consequences. The process to select a new Fed chair is underway, and the derivatives market is indicating a reduced likelihood of monetary policy easing. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US economy is resilient to tariffs.
- The derivatives market has reduced the chances of monetary expansion by the Fed.
- The process of selecting a new head of the US regulator has begun.
- Short trades on the EURUSD pair initiated at 1.168 can be kept open.
Weekly US Dollar Fundamental Forecast
American exceptionalism has been superseded by American resilience. This resilience has triggered a correction in the EURUSD pair. The US economy demonstrated notable stability during the pandemic in 2020, withstood the most significant Fed rate hikes in four decades from 2022 to 2023, and weathered the highest tariffs since the early 1900s in 2025. In all three cases, the US economy was doomed to failure. However, it maintains its vibrant performance.
Average Tariff Rate on US Imports
Source: Wall Street Journal.
The initial reaction to the tariffs on Liberation Day was a widespread shock, with many predicting an imminent recession. However, in July, Wall Street Journal experts revised their projections, lowering the likelihood of a downturn over the next 12 months from 45% to 33%. According to a survey conducted by Bank of America, 59% of investors expressed confidence in the US economy, with only a minority anticipating a contraction in GDP for two consecutive quarters. In April, 42% of respondents expressed concern about this on a net basis.
The economy is not in a state of recession, and inflation is not rapidly escalating. Consumer prices rose from 2.4% to 2.7% in June, and the core indicator increased from 2.8% to 2.9%. However, the situation could have been far more dire. The most recent figures are not expected to prompt a shift in the FOMC’s stance. Hawks will continue to focus on the potential for further CPI acceleration towards the end of the year, while doves will argue that the surge in inflation will be temporary.
US Inflation Change
Source: Wall Street Journal.
The derivatives market reacted to June consumer price data by reducing the probability of the Fed easing monetary policy in September from 63% to 54%. At the beginning of July, the probability was 95%. What insights did derivatives glean from the CPI figures?
The market is showing signs of resistance to the US administration’s plans to impact the Fed’s autonomy. The Treasury Secretary has announced that the selection process for a new Fed Chair has commenced. The primary candidates under consideration are Scott Bessent, Kevin Hassett, Kevin Warsh, and Christopher Waller, and all of them are advocating for lower rates.
The challenge lies in the fact that the pursuit of Donald Trump’s loyalty and the position of Fed chair will inevitably strain relations with other FOMC members. The Federal Reserve is not a one-person authority; decisions are made collectively. It is unlikely that the appointee of the US president will be able to bring about significant changes. The markets also harbor similar doubts, as they anticipate that interest rates will remain elevated for an extended period. The notion of a shadow Fed chair who investors would allegedly heed is not sustainable under scrutiny.
Weekly EURUSD Trading Plan
The stronger the action, the stronger the reaction. The US regulator could have loosened monetary policy in July, but pressure from Donald Trump may have played a role in its decision not to do so. The Federal Reserve’s current approach is a key factor in the ongoing decline of the EURUSD pair. Against this backdrop, short positions established at 1.168 can be maintained as long as the major currency pair trades below 1.164.
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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