Will the U.S. dollar keep falling in late-2025? What FX strategists say about Fed cuts, central-bank independence, and the euro’s path

If you’re searching for a practical U.S. dollar outlook for late-2025, the latest read from professional currency desks points to a gradual USD downtrend into year-end. The thesis blends three themes that rank high in a TF-IDF scan of recent research notes and polls: “Fed rate cuts,” “central bank independence,” and “euro to 1.20.” Put plainly, expectations for additional easing, paired with political cross-currents around the Fed, are nudging investors toward short-dollar trades and selective rotation into Europe and parts of Asia.

On policy odds, derivatives markets still lean toward more than one rate cut before early-2026. That matters because lower real yields chip away at the dollar’s carry premium versus peers and make it harder for the greenback to outperform when global growth is merely okay rather than exceptional. The currency has already logged a sizable year-to-date decline, which means the burden of proof now sits with dollar bulls: they need either a material upside surprise in U.S. growth or a downside shock overseas to flip the narrative.

The second driver is stickier and more controversial: questions about the Fed’s autonomy. Investors are watching high-profile skirmishes over appointments and public jawboning on rates. Even if policy decisions remain data-driven, perception matters in FX. A slightly wider credibility risk premium can tilt fair-value models a few big figures against the dollar, particularly when fiscal worries send 30-year yields swinging and global investors are reluctant to absorb ultra-long-dated supply.

What does a softer USD mean for businesses and households? Expect a modest lift to import prices and a small boost to multinational earnings translation. For portfolio managers, it supports tilts toward non-U.S. equities and select EM local rates where central banks are ahead on disinflation and current accounts are sturdy. Strategists’ one-year baseline has the euro edging toward ~1.20, contingent on calmer European bond markets and steady services activity.

Key risk scenarios can still rescue the greenback. A safe-haven spike—triggered by a disorderly bond rout or geopolitical jolt—would likely see DXY jump as investors reach for dollar liquidity. A surprise re-acceleration in inflation (tariffs, energy) could also push out the easing path and re-inflate the dollar’s carry advantage. In short: the trend bias is lower, but the distribution remains wide.