Fed Cuts Spark Recovery: Dollar Rebounds Despite Rate Easing

Market Sentiment Overview

Markets are digesting the Federal Reserve’s first rate cut of 2025, with a 25 basis point reduction to the 4.0%-4.25% range sparking mixed reactions. The US Dollar staged a surprising recovery after initially hitting three-year lows, while equity markets continue their rally to fresh highs. Fed Chair Powell’s cautious tone helped support the Dollar, calling the cut a “risk management move” despite dot plot projections showing 50 basis points of additional cuts this year. Risk sentiment remains positive with geopolitical tensions providing underlying support for safe-haven assets.

Currencies

USD Index: Unexpected Recovery Post-Fed (98.00)

Current Trend: Mixed/Recovering Market Sentiment: Cautiously Optimistic

The US Dollar Index staged a meaningful comeback this week, rebounding from three-year lows near 96.20 to approach the 98.00 barrier. Despite the Fed’s dovish rate cut and projections of two more cuts in 2025, Chair Powell’s measured rhetoric helped support the Greenback. His description of the cut as “risk management” and emphasis on the meeting-by-meeting approach dampened expectations for aggressive easing. New Fed Governor Stephen Miran dissented, pushing for a 50bp cut, highlighting internal divisions. The Dollar’s technical outlook remains challenging, with resistance at 100.26 and potential downside to 95.13 if bearish momentum resumes.

EUR/USD: Retreat from Four-Year Highs (1.1750)

Current Trend: Corrective/Bearish Market Sentiment: Mixed

EUR/USD peaked at a fresh four-year high of 1.1918 early in the week before surrendering most gains to settle around 1.1750. The pair’s retreat coincided with the Dollar’s post-Fed recovery, despite ECB officials delivering mixed messages on future policy. ECB Vice President de Guindos noted “very positive” inflation news while maintaining a “prudent” approach, while Governing Council member Centeno suggested “the next move is still likely to be a rate cut.” Technical indicators show momentum stalling, with the RSI retreating from overbought levels. Support lies at 1.1700, with resistance at 1.1830.

GBP/USD: Sharp Correction from 11-Week Highs (1.3460)

Current Trend: Bearish Market Sentiment: Negative

The Pound Sterling suffered a dramatic reversal, falling from 11-week highs of 1.3723 to the 1.3460 zone by week’s end. Despite stronger-than-expected UK inflation at 3.8% (above the BoE’s 2% target) and solid retail sales data (+0.5% monthly), GBP/USD couldn’t sustain gains above 1.3600. The BoE’s cautious hold at 4% with a 7-2 vote, combined with USD strength, pressured Cable lower. Technical outlook shows the pair testing the 21-day SMA at 1.3524, with RSI defending the midline, suggesting potential for recovery if Dollar weakness resumes.

Stocks

S&P 500: New Highs on Fed Dovishness (6,650)

Current Trend: Strongly Bullish Market Sentiment: Very Positive

The S&P 500 extended its rally to fresh all-time highs following the Fed’s rate cut, with the index targeting levels between 7,400-7,600 as previously forecasted. Tech stocks led the advance, with NVIDIA and AI-infrastructure companies benefiting from expectations of increased capital flow. The dovish Fed stance, projecting 100bp of cuts between now and mid-2026, provides strong tailwinds for equity markets. Small caps also surged, with the Russell 2000 posting gains of over 2% and setting record highs. Consumer and housing sectors are expected to outperform as rate cuts filter through the economy.

Micron Technology (MU): Earnings Catalyst Ahead ($160)

Current Trend: Bullish Market Sentiment: Positive

Micron Technology approaches its Q4 2025 earnings report (due September 23rd) with strong momentum, trading near $160 after multiple analyst upgrades. Wolfe Research raised its target to $180, while other firms, including Barclays and Robert W. Baird, have also increased targets significantly. The company is expected to report $2.77 EPS on revenue of $11.05 billion. Recent insider selling hasn’t dampened investor enthusiasm, with institutional ownership at 80.84%. The memory chip sector benefits from AI demand and improving supply-demand dynamics.

Commodities

Gold: Fifth Consecutive Weekly Gain ($3,670)

Current Trend: Strongly Bullish Market Sentiment: Very Positive

Gold extended its impressive rally, notching a fifth consecutive week of gains and hitting record highs past $3,700. The precious metal benefits from Fed rate cut expectations, persistent geopolitical tensions in the Middle East and Ukraine, and continued Dollar weakness despite this week’s recovery. Speculative net longs increased to levels last seen in February, while open interest approached 510K contracts. Technical outlook remains constructive with immediate resistance at $3,707 (record high), followed by Fibonacci extensions at $3,912 and $4,127. The $4,000 psychological level emerges as the next major target.

WTI Crude Oil: Supply Concerns Persist ($62.86)

Current Trend: Bearish Market Sentiment: Negative

Oil prices fell over 1% despite the Fed rate cut, with WTI dropping to $62.86 and Brent to $66.73. Abundant supply and weakening demand concerns outweighed expectations that lower rates could stimulate consumption. OPEC’s gradual scaling back of production cuts and steady Russian exports maintain supply pressure, while the refinery maintenance season approaches. The Fed’s 25bp cut is viewed as insufficient to meaningfully boost demand, with analysts suggesting more aggressive easing would be needed to impact energy markets significantly.

Cryptocurrencies

Bitcoin: Fed Dovishness Fuels Rally ($116,700)

Current Trend: Bullish Market Sentiment: Positive

Bitcoin steadied above $116,000, extending its three-week recovery on Fed dovishness and strong institutional flows. The central bank’s rate cut and prospects for further easing lifted risk sentiment across crypto markets. Bitcoin spot ETFs recorded $664 million in inflows this week, marking the fourth consecutive week of positive flows. MicroStrategy added 525 BTC to reserves, bringing total holdings to 638,985 BTC. The SEC approved the first multi-asset crypto ETP, including Bitcoin, Ethereum, XRP, Solana, and Cardano. Technical indicators remain bullish with RSI at 60 and potential for a move toward $120,000.

Key Events This Week (September 22-26, 2025)

Economic Releases

Monday: Chicago Fed National Activity Index
Tuesday: Current Account, preliminary S&P Global PMIs (crucial for direction)
Wednesday: New Home Sales, EIA Crude Oil Inventories
Thursday: Initial Jobless Claims, Durable Goods Orders, Final Q2 GDP
Friday: PCE Price Index (Fed’s preferred inflation gauge), Final Michigan Consumer Sentiment

Fed Speakers Calendar

Monday: Fed’s Williams, Musalem, Barkin, Hammack
Tuesday: Fed’s Bowman, Bostic, Powell (key appearance)
Wednesday: Fed’s Daly
Thursday: Fed’s Goolsbee, Williams, Bowman, Daly
Friday: Fed’s Hammack, Barkin, Bowman, Musalem

Central Bank Meetings

Monday: Riksbank Rate Decision (2.00% expected)
Wednesday: Hungarian Central Bank (6.50% expected)
Thursday: Swiss National Bank Rate Decision (0.00% expected, watching for negative rate threats)

Corporate Earnings

Tuesday: Micron Technology Q4 2025 results after market close

Week Ahead Outlook

The focus remains on Fed speakers and Friday’s PCE data, which could influence expectations for October’s meeting. Dovish Fed commentary may pressure the Dollar’s recovery, while stronger PCE readings could support the Greenback’s rebound. Tuesday’s preliminary PMIs will provide insights into global economic momentum. The SNB meeting on Thursday bears watching, with potential threats of negative rates given the Swiss Franc’s 13% rally against the Dollar. Oil markets face continued pressure from supply concerns, while Gold’s rally may face technical resistance near record highs.

Risk management remains crucial given the mixed signals from currency markets and ongoing geopolitical uncertainties in the Middle East and Ukraine.