The US Dollar (USD) is experiencing fluctuations, stabilising slightly above last week’s lows. The current focus is on the New York Fed’s November survey of consumer expectations, considered a key factor in influencing USD sentiment.
The survey highlights US inflation expectations, which remain steady at approximately 3%. With this stability, there may be space for the Federal Reserve to consider easing its policy. The survey also assesses the ‘mean probability of losing a job’, as increased job insecurity can prompt households to save more, potentially restricting consumer spending.
US Dollar Struggles
We’re seeing the US Dollar struggle to find its footing, sitting just above the lows we hit at the end of November 2025. That New York Fed survey confirmed what many suspected, showing a rise in job loss fears among consumers, with one-year inflation expectations holding steady at 3.0%. This lines up with last week’s November CPI report, which showed core inflation dipping to 2.9%, reinforcing the disinflation trend.
This gives the Federal Reserve plenty of room to start easing policy, a stark contrast to the aggressive hiking campaign we saw back in 2022 and 2023. All eyes are on the upcoming December 16-17 FOMC meeting for any signal of a first-quarter 2026 rate cut. We believe the market, as shown by Fed Funds futures pricing, is anticipating a 75% chance of a cut by March 2026, which is keeping a lid on the dollar.
For traders, this environment suggests considering long-dated put options on the Dollar Index (DXY) to position for further weakness into the new year. Alternatively, buying call options on currencies like the Euro or Australian Dollar against the USD could offer upside exposure. Implied volatility is relatively subdued, making these positions cheaper to enter ahead of the next major catalyst.
Interest Rate Derivatives Opportunity
Looking at interest rate derivatives, we see value in purchasing call options on Secured Overnight Financing Rate (SOFR) futures. This is a direct bet on the Fed cutting rates sooner or more aggressively than currently priced in by the market. These positions could pay off significantly if the December FOMC minutes or early 2026 data show the economy slowing faster than anticipated.
We must remain cautious, as year-end trading can be thin, leading to exaggerated price moves. A surprisingly strong jobs report for December, due in early January, or any unexpectedly hawkish tone from the Fed could cause a sharp, painful reversal for short-dollar positions. Therefore, using options with defined risk is a prudent way to express this bearish view.
