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 trades 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 trades 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).
The base case stays dollar bullish because inflation is not beaten — goods prices are still rising and headline CPI holds north of 4%, so the Fed will not cut aggressively — while fiscal impulse from tax cut extensions and infrastructure spend keeps growth hot and deficits wide. Q3 closed with DXY past 112, its highest in over two decades, and year-end trades look like an extension of that move.
The article favours long USD/JPY for the best carry in G10 with the BOJ still behind the curve (target 162–165, stop below 152), short EUR/USD on a widening yield gap and anaemic Eurozone growth (parity in sight, 0.98–1.00 achievable), and long USD versus an EM basket like USD/MXN and USD/TRY for torque, sized conservatively. It explicitly advises against counter-trend short-dollar bets until a clear macro shift appears.
The main downside risk is a surprise dovish Fed pivot if the labour market cracks, which the article views as unlikely near-term. The biggest upside catalyst for the dollar would be tariff deals falling apart and sparking fresh inflation fears, though volatility is expected to pick up around fiscal debates and tariff updates regardless.
Vector Ridge delivers real-time alerts across four models — Day Trade, Multi-Hour, Swing Trade, and Investing — each carrying a conviction grade from A (highest) to D (lowest), framed by the Vector Ridge Macro Framework behind this outlook. Access is $20/mo for a single model or $50/mo for all models, with a 7-day free trial.