FOMC officials are in no rush to accelerate monetary tightening, while expectations of a December rate hike are already priced into the EUR/USD. The currency pair now needs a fresh catalyst to determine its next move. Let’s examine the outlook and develop a trading strategy.
The article covers the following subjects:
Major Takeaways
- FOMC officials are in no rush to accelerate monetary tightening.
- Expectations of a Fed rate hike in December are already priced into EUR/USD.
- Rising oil prices have provided additional support for the US dollar.
- A rejection of the 1.109 and 1.113 resistance levels could create selling opportunities.
Weekly Fundamental Forecast for US Dollar
The Fed is in no rush to make its next move, but Donald Trump’s statement that the US does not need a deal with Iran, coupled with a rally in Brent crude, has pushed the EUR/USD pair below 19-month lows. The US leader has directed his administration to focus on domestic priorities, dashing hopes for a swift resolution to the Middle East conflict and increasing the risk of further inflationary pressures and prolonged monetary tightening.
With considerable time remaining before the December FOMC meeting, the outlook could still change significantly. Fed officials’ cautious approach is therefore understandable. New York Fed President John Williams believes monetary policy still needs further adjustment, while Cleveland Fed President Beth Hammack argues that gradual rate increases give businesses and households time to adapt. Fed Governor Michelle Bowman favors balancing further monetary tightening against the financial conditions already tightening across markets.
Forecasts for Fed Funds Rate
Source: Bloomberg.
Fed officials’ comments offer little indication that the federal funds rate will rise by 50 basis points in December. CME derivatives markets put the probability of such a move at just 15%. Moreover, several developments could emerge before the final FOMC meeting of 2026 and undermine the case for further monetary tightening. These include a potential government shutdown, falling oil prices following a diplomatic breakthrough in the Middle East, or a sell-off in US stock indices that could tighten financial conditions without further Fed intervention.
After digesting stronger-than-expected US employment and inflation data, markets are gradually regaining their composure. Expectations of another Fed rate hike in December are already reflected in EUR/USD prices, as is the possibility of a 50-basis-point increase. Investors now need fresh catalysts to determine their next moves, and attention is shifting to the oil market.
Tensions in the Middle East remain elevated, while Brent crude has fallen more than 20% from its October highs as the geopolitical risk premium has narrowed. Investors had increasingly expected a diplomatic breakthrough under the Democrats. However, the new Congress will not take office immediately, and the conflict remains far from resolved. As markets reassess these risks, oil prices are beginning to recover. This could provide additional support for the US dollar, reinforcing the impact of expectations surrounding further Fed tightening.
Weekly Trading Plan for EUR/USD
The EUR/USD has established a clear downward trend. Therefore, pullbacks following rejections at the 1.109 and 1.113 resistance levels could offer opportunities to build short positions.
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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