USD Recent Rebound Could be Just a False Dawn Amid Fed Easing

The US Dollar staged a subtle comeback on September 18 and 19, 2025, with the DXY index climbing 0.49% to close at 97.35 on the first day and adding another 0.23% to reach 97.5750 on the second. This uptick followed the Federal Reserve’s 25 basis point rate cut on September 17, bringing the funds rate to 4.75-5.00%. Yet, this short-lived strength raises a pressing question: does it signal genuine resilience, or merely paper over cracks in an economy grappling with slowing growth and policy uncertainties? In a world where central bank moves can spark rapid shifts, this rebound demands scrutiny—not as a victory lap, but as a stark reminder that the dollar’s fate now hinges on a Fed increasingly tangled in political crosshairs.

Unpacking the Short-Term Gains

Over those two days, the DXY index fluctuated within a narrow band, opening at 96.93 on September 18 with highs touching 97.60 before settling higher, and then building on that momentum the next day from an open of 97.34 to a close of 97.5750. Weekly, the index eked out a slim 0.12% gain, a far cry from the broader year-to-date slide of over 10%. This performance came amid lighter trading volumes, as markets digested the Fed’s decision and better-than-expected initial jobless claims of 231,000—below forecasts and hinting at a labor market not yet in freefall.

But let’s not overlook the context. The Fed’s dot plot now projects two more cuts this year and one in 2026, with Chair Jerome Powell framing the easing as “risk management” to navigate a cooling jobs landscape without panic. Minneapolis Fed President Neel Kashkari echoed this, endorsing two additional reductions while highlighting economic resilience through upgraded GDP forecasts to 2.1% for 2025. These signals propped up the dollar temporarily, drawing safe-haven flows as global peers like the Bank of Canada slashed rates by 25 basis points and the Bank of Japan held steady.

The Hidden Vulnerabilities Lurking Beneath

Dig deeper, though, and the fundamentals paint a more cautionary tale. August’s inflation at 2.9% year-over-year and unemployment at 4.3% underscore persistent pressures, even as wage growth slows to 3.8%. Trump’s administration tariff proposals—potentially 10-20% on imports—could stoke inflation anew, complicating the Fed’s path and widening deficits projected at $2 trillion. Historically, similar policy mixes in the late 2010s fueled dollar volatility, but this time differs with post-pandemic debt levels amplifying risks—and now, the fresh wildcard of new Fed Governor Stephen Miran.

Miran, confirmed just days before the September meeting and on unpaid leave from his role as head of the White House’s Council of Economic Advisers, cast the lone dissenting vote against the rate cut. His projections reportedly baked in steeper easing, aligning with President Trump’s calls for aggressive relief to counter tariff-induced price spikes. This isn’t just internal Fed drama; it’s a provocative signal of eroding independence, echoing Trump’s earlier bid to oust Governor Lisa Cook—a move courts have so far blocked.

Opponents might argue the rebound reflects US exceptionalism, with non-farm payrolls still positive at +73,000 in July. Yet, this ignores how aggressive easing could erode the dollar’s appeal if growth falters below 1.4% next year, as some estimates suggest. Global divergences, like eurozone stagnation, offer relative support, but they won’t shield against domestic fiscal headwinds forever—especially with a governor like Miran tilting the balance toward politics over prudence.

What Lies Ahead in This Uncertain Landscape

Looking forward, expect choppy waters. If tariffs ignite trade tensions, the dollar might surge as a haven, but sustained Fed cuts could unwind that edge, testing supports seen in early 2025 lows.

Past cycles, such as the 2008 unwind, show how policy missteps can cascade into prolonged weakness; today’s twist—with officials like Miran bridging White House and Fed—makes repetition not just possible, but probable. Investors and traders, tread with caution: stay fully informed on every FOMC whisper and tariff tweet, because in this high-stakes game, complacency could cost dearly. The dollar’s next chapter isn’t about steady climbs—it’s rather about surviving the storm of divided priorities.