Fed rate cut forecast 2025
Federal Reserve (USD)
Fed Chair Jerome Powell struck a dovish tone at Jackson Hole (Aug 22), highlighting rising job market risks despite persistent inflation. He hinted at a possible September rate cut without confirming it. Markets reacted swiftly — odds of a cut rose to 80–85%, U.S. yields fell, and the dollar weakened.
Powell flagged growing job market risks while still acknowledging inflation concerns, signaling the Fed may ease cautiously. This dovish stance pressures the USD, though strong U.S. data or hawkish Fed talk could trigger short-term rebounds. With Powell’s term ending in May, Jackson Hole likely set the tone for fall USD trading and a potential end-of-cycle rate cut.
Forex Forecast Summary – Aug 25–30, 2025
Key Events: US Core PCE (Aug 29), US GDP (Aug 28), ECB Minutes.
| Currency Pair | Bias | Key Levels | Drivers |
|---|---|---|---|
| EUR/USD | Bullish | 1.1650 – 1.1830 | Strong EZ data, stable ECB, weak USD |
| GBP/USD | Cautiously Bullish | 1.3420 – 1.3660 | High UK CPI, BoE pause |
| USD/JPY | Rangebound | 145.00 – 150.00 | Fed easing vs BoJ cautious hawkish tone |
| USD/INR | Bullish | 87.00 – 88.50 | US-India tariff escalation |
| DXY Index | Bearish | 97.00 – 100.00 | Powell dovish speech at Jackson Hole |
BoE inflation dilemma
Bank of England (GBP)
UK inflation jumped to 3.8% in July — the highest in the G7 — boosting GBP. The BoE has slowed rate cuts, with nearly half of policymakers opposing the August cut. Markets now expect no further easing until 2026. With inflation near 4%, the Bank may pause, keeping Sterling supported above 1.34.
EUR/USD resistance levels
European Central Bank (EUR)
Strong Eurozone data and a steady ECB stance are lifting the euro. August PMI hit a 15-month high (51.1), with manufacturing expanding for the first time in over three years. Inflation is near 2%, and the ECB is likely on hold until December. This stable policy and improved sentiment support continued EUR strength.
Yen Firm Post Jackson Hole
Bank of Japan (JPY)
The yen firmed post-Jackson Hole as narrowing yield spreads and safe-haven flows supported JPY. BoJ Governor Ueda signaled optimism on wages and inflation, hinting at a possible rate hike later this year. The BoJ has already raised rates to 0.5% and upgraded inflation forecasts. USD/JPY remains range-bound near ¥146, with a slight bearish tilt as the Fed eases and the BoJ slowly normalizes.
Currency Pair Forecasts – Week of Aug 26–30, 2025
USD Index (DXY) technical chart as of mid-August 2025, with the index retreating from ~98.7 to the 97.6 support zone after Powell’s dovish remarks. Key support lies around 97.0, with psychological resistance up near 100.0.
USD Forecast – Dollar Index (DXY)
Current: ~97.7
Support: 97.00 | Resistance: 100.00
Bias: Cautiously Bearish
The dollar weakened after Powell’s dovish shift, with DXY falling toward key 97.0 support. Unless U.S. data surprises hawkishly, further downside toward 96.5 is possible. Near-term rebounds may stall below 99. Meanwhile, EUR/USD resumed its uptrend, holding above 1.17 with next resistance near 1.18.
EUR/USD Forecast
Current: ~1.1730
Support: 1.1650 | Resistance: 1.1810
View: Moderately Bullish
EUR/USD remains firm above 1.1700, lifted by euro strength and USD softness. The pair hit a one-month high near 1.1740 post-Jackson Hole, with support at 1.1650 holding. Upside targets lie at 1.1800–1.1850, while a break below 1.1650 could trigger a retreat toward 1.15. Bias remains bullish within a 1.1650–1.1830 range.
GBP/USD Forecast
Current: ~1.3540
Support: 1.3420 | Resistance: 1.3620–1.3660
View: Cautiously Bullish
GBP/USD remains supported above 1.34, rebounding on strong UK inflation and USD weakness. Key support sits at 1.3420, with resistance at 1.3620. A breakout could target the 1.3700–1.3730 zone. Bias stays bullish, with a likely range of 1.3420–1.3660 this week.
USD/JPY Forecast
Current: ~147.0
Support: 145.00 | Resistance: 149.80
View: Rangebound (Slight Bearish Tilt)
USD/JPY remains rangebound between 145.00 and 150.00, slipping after the Fed’s dovish pivot. Support at 145 is key, with resistance near 149.5–150.0. While weaker USD momentum and potential BoJ hikes add downside risk, strong risk sentiment may keep the pair in the upper 140s. Bias: slightly bearish within a 145–150 range.
EUR/JPY Forecast
Current: ~172.5
Support: 170.50 | Resistance: 174.50
View: Bullish Continuation
EUR/JPY remains near multi-year highs, supported by euro strength and wide yield spreads. Dips toward 170.5 have been shallow, with resistance at 174.50–175. The uptrend remains intact, though risk-off sentiment could trigger a pullback toward 169–170. Bias: bullish while above 170.5.
USD/INR Forecast
Current: ₹87.45
Support: ₹87.00 | Resistance: ₹88.50
View: Bullish
USD/INR dipped below 87.5 on Fed-driven dollar weakness, but gains may resume amid rising US-India trade tensions and capital outflow risks. Key resistance lies at ₹88.00–88.50, with support at ₹87.00. Bias: bullish, with INR under pressure unless trade risks ease or the USD softens significantly.
Key Event Risks This Week
- Aug 28 – US Q2 GDP (second estimate) & Core PCE prices: An upward revision to growth or higher inflation in this report could test the “dovish Fed” narrative, whereas soft numbers would reinforce it.
- Aug 29 – US Personal Income/PCE Inflation (Jul): The Fed’s preferred inflation gauge (core PCE) for July will be scrutinized. Expected around 0.3% m/m, any surprise could jolt USD volatility. Consumer spending data are also released.
- Aug 29 – ECB Meeting Minutes (July): The Eurozone central bank’s account may provide clues on how united (or not) policymakers are about future rate cuts. This could subtly affect EUR sentiment, especially if any hawkish tones emerge.
Exchange Rate Forecast – Medium-Term View
| Currency Pair | 3–6 Month Bias |
|---|---|
| USD | Weakening bias amid Fed rate-cut cycle |
| EUR/USD | Upside bias toward 1.1850–1.1900 |
| GBP/USD | Potential toward 1.38+ if BoE holds rates |
| USD/JPY | Dependent on Fed–BoJ divergence (yen could strengthen if Fed eases faster) |
| USD/INR | Likely to remain elevated unless trade tensions ease |
Trading & Hedging Insights
- Importers: Hedge USD needs while the dollar is weak, but stay flexible in case U.S. data shifts sentiment.
- Exporters: Lock in favourable rates for EUR and GBP receivables; watch INR volatility amid tariff risks.
- Traders: Use Jackson Hole-driven volatility to trade EUR/USD near 1.1800 and GBP/USD near 1.3600.
- Investors: Stay nimble. Fed easing pressures USD, but central bank divergence and geopolitics can shift trends.
Currency Forecast FAQ’s
Will the U.S. Dollar keep weakening now?
Probably, yes. The Fed’s dovish tilt at Jackson Hole suggests limited upside for USD. Unless upcoming U.S. data significantly surprise to the upside (reigniting hawkish fears), the bias for the dollar is to drift lower this week.
Is EUR/USD’s rally sustainable?
It looks that way. As long as 1.17 is maintained as support and risk sentiment stays benign, EUR/USD has room to climb. The pair could target the high-1.17s to 1.18 area on continued USD softness marketpulse.com.
Can GBP/USD finally break above 1.36?
It has a good chance. With UK inflation remaining elevated and the Fed on a dovish course, the ingredients are there for a 1.36+ breakout. A daily close past 1.3620 would likely spur bulls toward 1.3700+.
Will the Fed’s dovish stance affect all major FX pairs?
Absolutely. Expectations of Fed rate cuts tend to weaken the dollar broadly, which lifts major counterparts (EUR, GBP, JPY, etc.). That said, each currency will also react to its own drivers (e.g. ECB minutes for EUR, BoJ hints for JPY), so some cross-currents can occur. In general, the Fed’s policy shift is the dominant theme across FX markets right now.
Bottom Line:
The Fed’s easing bias is pressuring the USD, lifting EUR/USD and GBP/USD while easing pressure on EM currencies like INR. USD weakness may persist, but volatility could return around key U.S. data. Post-Jackson Hole, markets remain cautiously risk-on — but watch for surprises like tariffs or inflation shocks.
