Q3 Forex Outlook
DXY closed Q3 pushing past 112 — its highest level in over two decades. Dollar exceptionalism is the trade of 2025. Year-end setups look like an extension.
September 2025Q3 Recap: Dollar Exceptionalism
The summer slowdown never materialized for the dollar. Despite thin volumes, yield differentials and inflation fears kept capital flowing stateside.
- EURUSD: Steady downtrend, parity threats constant as ECB cuts rolled in
- USDJPY: Blew through 155–158 as carry rebuilt aggressively
- EM carnage: USDMXN past 21, USDTRY one-way, AUD/CAD lagging
Year-End Drivers
Heading into Q4, the base case remains dollar bullish:
Inflation not beaten: Goods prices still rising, shelter lagging higher — CPI stays north of 4% headline. The Fed won't cut aggressively.
Fiscal impulse: Tax cut extensions and infrastructure spend keep growth hot, deficits wide.
Biggest upside catalyst: tariff deals fall apart, sparking fresh inflation fears. Downside risk: surprise dovish Fed pivot if labor cracks (unlikely near-term).
Key Positioning Ideas
- USDJPY long: Best carry in G10, BOJ still behind curve. Target 162–165, stop below 152
- Short EURUSD: Yield gap widening, Eurozone growth anemic. Parity in sight — 0.98–1.00 achievable
- USD vs EM basket: USDMXN and USDTRY for torque — size conservatively
Avoid counter-trend bets: No interest in short dollar until clear macro shift.
Bottom Line
Q3 confirmed dollar exceptionalism is the trade of 2025. Year-end setups look like an extension: higher DXY, weaker majors and EM, clean directional moves.
Volatility will pick up with fiscal debates and tariff updates, but the path of least resistance remains long dollar. Don't overcomplicate it.
Vector Ridge holds selective long-dollar forex positions. Maximum overweight precious/industrial metals (gold, silver, platinum, palladium, uranium); core holdings in AI leaders (NVIDIA, Alphabet).