“Buy the facts”: Will FED’s Shift Support the US Dollar?

The FED’s week was somewhat controversial: the September decision of FOMC has perfectly fit expectations of getting the interest rate down for one step (quarter a point), having opened a path to more declines in Q4, 2025.

Interestingly, despite the dovish signal, the US dollar had corrected higher, pushing other asset prices slightly lower. That represents the old trading adage: “buy the rumours, sell the news”. In this case, inflated expectations about dovish monetary policy had brought a lot of short sellers of the US dollar to the market, which now tend to fix their profits.

Now, as the odds of 3 steps of decline for the interest rate in 2025 are already stacked, the

The market looks forward to trying to find new narratives and drivers for the price action.

Despite the cooling of the labor market in the US, it’s difficult to say anything about possible recession, as the GDP growth data for Q3 is not calculated: GDP is a lagging indicator. Overall dynamics of GDP of the US economy was stronger in Q2 than in Q1, so investors don’t consider recession as a possible scenario.

At the same time, the 10-2 spread (spread between 10-year bond yields and 2-year bond yields) keeps above the zero line, which balances the situation. The US manufacturing PMI has been below 50 since February, which is a signal of weakness. Despite the good number of weak signals, stocks produce steady performance and US indices have established new all-time highs along with Gold.

This situation might fuel inflation higher and stabilize the situation around interest rates. Currently, 3 consecutive declines in 2025 are already priced in, but the situation might change as there’s enough data to be published in Q4, 2025.

The next important publication would be the PCE index on Sep 25th.

EUR/USD

As the interest rate decline cycle in the US has officially begun, the speculation around selling the US dollar might wrap up. Should the incoming data for inflation be stronger than expected, then might push the rebound for EURUSD and other USD related pairs. If the price fails to break though the resistance, it will give a confirmation for the potential weakness for Euro against the greenback.

Dow Jones

The rotation from tech stocks back to the industrial sector is the main trend in late September: Dow Jones gets back in play. The price consolidates in the ascending wedge, and ready to break it to the upside as shown on the chart, with a potential target area above $48000.

The alternative scenario would be a false breakout with a continuation of a consolidation and another attempt to break it closer to PCE index publication on September 25th, 2025.