Rumors about a shadow chairman of the Federal Reserve, a seasonally weak December for the US dollar, and expectations of an overnight rate hike by the Bank of Japan at its upcoming meeting have allowed the euro to take the bull by the horns. EUR/USD quotes surged to their highest levels since late October. Positive statistics from France added fuel to the rally. The composite business activity index of the second-largest economy in the eurozone entered the expansion zone for the first time since the summer of 2024, when Paris hosted the Olympic Games.

Business activity in France

Despite US tariffs and political turbulence with frequent changes in prime ministers, France's GDP grew by 0.5% in the third quarter, more than doubling the growth of the eurozone's gross domestic product. The main drivers of this economic expansion were trade and investment. If other European countries catch this momentum, the euro is likely to continue strengthening.

Moreover, its main competitor, the US dollar, is facing serious trust issues. Donald Trump has confirmed that he will soon appoint a new chairman of the Federal Reserve. The president noted that this will happen early next year. Previously, Treasury Secretary Scott Bessent mentioned Christmas as the target date, but the slight difference in timing does not change the essence.

Soon, the US will have a shadow chairman of the Federal Reserve, which may lead to panic in the markets. Who should investors trust? Jerome Powell, who is resigning in May, or his successor? It is likely to be Kevin Hassett, the director of the National Economic Council.

He will probably discuss aggressive easing of monetary policy. While other central banks are poised to make a hawkish pivot, a reduction in the Federal Reserve's funds rate risks seriously pressuring the US dollar. This factor, combined with poor seasonality and tightening monetary policy in Japan, leads Deutsche Bank to forecast a 2% decline in the USD index by 2025.

Dynamics and forecasts for the US dollar index

Standard Bank and BNP Paribas believe that the acceleration of the EUR/USD uptrend could be propelled by the Supreme Court's decision to overturn Donald Trump's tariffs. The United States will have to return funds, losing a vital source of financing from the great and beautiful tax cut law. As a result, the issuance of Treasury bonds will increase, and attracting investors to the US market will be more challenging than before.

US stock indices have performed the worst among the 14 largest equity markets in 2025. The theme of artificial intelligence is no longer providing the same support for US assets. Capital outflows will hit the dollar.

Technically, on the daily chart for EUR/USD, a clearly defined combination of reversal patterns, the Three Indians and 1-2-3, has been implemented. The breakout of the trendline suggests the completion of a pullback and a return to the upward trend. It makes sense to buy euros with targets at $1.175 and $1.185.