Insights 
VT 
The US Dollar (USD) has emerged as the strongest performing currency among the G10 currencies this October and continues to lead in the latter half of the year. According to Rabobank’s FX analyst Jane Foley, recent comments from Federal Reserve Chair Powell suggesting that a December rate cut is not guaranteed have provided further support to the USD.
The EUR/USD exchange rate has dipped below 1.16 due to the strengthening USD. Although there was a view earlier that the EUR/USD could rebound to 1.16, it is currently under that level, raising questions about whether this indicates a shift in the currency pair’s trend.
Uncertainty in Forecast for EUR/USD
Previously, there was an expectation for EUR/USD to rise to 1.20 by next spring, anticipating potential concerns over the Fed’s independence affecting the USD. However, Rabobank indicates increasing uncertainty in this forecast due to multiple factors impacting both currencies.
Concerns about the Fed’s independence might impact the USD in the spring, but Rabobank sees no evidence of a sustained decline against the EUR. Future adjustments to the EUR/USD forecast will depend on upcoming US economic data. The FXStreet Insights Team curates market observations from experts, offering notes and insights from internal and external analysts.
Given the dollar’s recent performance, we should reconsider any strategies that bet on significant USD weakness. The US Dollar Index (DXY) has climbed over 3% since early September 2025, showing sustained buying pressure. This move supports the view that the dollar’s outperformance in the second half of the year is a durable trend, not a temporary correction.
Market Reactions to the Dollar’s Strength
We have seen EUR/USD break decisively below the key 1.1600 level, which was a significant technical support zone through the summer. Recent Eurozone PMI data from late October 2025 showed the manufacturing sector remains in contraction, reinforcing concerns about relative economic weakness compared to the US. This economic divergence makes holding long EUR/USD positions increasingly risky in the weeks ahead.
The market had been pricing in a near 60% chance of a Fed rate cut in December 2025, but those odds have now dropped below 30% following recent official commentary. This sharp repricing of interest rate expectations is a primary driver of the dollar’s current strength. Derivative traders should look at options strategies, such as buying puts on EUR/USD, to hedge against or profit from further downside.
The fading confidence in a long-term EUR/USD target of 1.20 suggests market uncertainty is rising, which can be seen in rising short-term volatility. Looking back, we saw similar periods of forecast doubt in late 2023 before major data releases caused sharp moves. Traders might consider strategies that benefit from increased price swings, like straddles, ahead of the upcoming US inflation and jobs reports.
