Title: US Dollar Rises on Strong Economic Data and Fed Expectations: Forex Market Insights – September 12, 2025
Original Source: Mitrade (Author: Mark Stone)
The US dollar strengthened on Thursday, September 12, 2025, following positive economic indicators and growing market expectations that the US Federal Reserve may delay rate cuts due to a resilient economy. The greenback’s rise spurred large moves across major currency pairs, underscoring a shift in trader sentiment amid a complex macroeconomic backdrop.
This article offers a deep dive into current forex market developments, key data releases, and the broader monetary policy outlook, incorporating insights from Mitrade’s original coverage while expanding with new information from other reputable sources.
1. US Dollar Strengthens Amid Solid Economic Data
The US dollar made solid gains following the release of several key economic metrics suggesting persistent strength in the American economy. These figures came just days after mixed inflation data had produced some uncertainty in FX markets.
Key indicators driving USD momentum:
– **US Retail Sales**: Retail spending rose more than forecast, up 0.8% in August compared to the anticipated 0.4% increase (Reuters). This reflects sustained consumer demand, despite higher borrowing costs, which suggests underlying economic momentum.
– **Initial Jobless Claims**: Weekly unemployment claims came in lower than expected at 205,000 versus the estimated 225,000. This level suggests continued strength in the labor market, which is closely monitored by policymakers at the US Federal Reserve.
– **Producer Price Index (PPI)**: The PPI, which tracks inflation at the wholesale level, was up 0.6% in August, well above the 0.3% forecast. The uptick reflects rising costs in energy and other inputs, contributing to inflationary pressures.
These cumulative data points reinforce the case that the US economy remains resilient and could delay any pivot in monetary policy from the Fed.
2. Market Readjusts Fed Expectations
Prior to the data releases, market consensus had leaned toward the likelihood of the Federal Reserve initiating rate cuts in late 2025 as inflation gradually subsides. However, traders have recalibrated those expectations.
Updated Fed outlook:
– **Rate Cut Timing Pushed Back**: While a rate cut in December had been priced in by some market participants, recent data boosts the probability that the Fed keeps rates higher for longer. CME FedWatch tool now shows a 70% chance the Fed holds rates at current levels in December, up from 44% a week earlier.
– **”Higher for Longer” Narrative Regains Strength**: Fed officials have reiterated the need to see sustained disinflation before easing policy. The robust labor market and inflation uptick in PPI indicate that the fight against inflation may not yet be over.
Cleveland Fed President Loretta Mester stated earlier this week, “We need to see more progress on inflation before considering rate reductions. Strong consumer spending and labor data show the economy is doing well, which allows us to be cautious.”
3. Impact on Major Currency Pairs
As the dollar rallied, other major currencies fell against it, leading to significant pairwise movements across the forex market.
– **EUR/USD**: The euro dropped below the 1.0700 level, hitting a three-month low as the European Central Bank (ECB) signaled it may be nearing the end of its tightening cycle. The divergence in policy outlook between the Fed and the ECB added pressure on the euro.
– **GBP/USD**: The British pound fell to 1.2450, its lowest in two months. Weak economic performance in the UK and expectations that the Bank of England may pause rate hikes contributed to sterling weakness.
– **USD/JPY**: The pair breached the 148 threshold, approaching levels that previously triggered intervention warnings from Japanese authorities. The dollar strength combined with yield differentials led traders to resume carry trades that favor dollar holdings.
4. Emerging Market Currencies
Read more on USD/CAD trading.