San Francisco Federal Reserve President Mary Daly said on Thursday that US monetary policy is in a good place.<\/p>\n
She said the labour market is in a better position after 75 basis points of rate cuts.<\/p>\n
Daly said inflation is still easing, apart from the goods sector.<\/p>\n
At the time of writing, the US Dollar Index (DXY) was about 97.83, up 0.10% on the day.<\/p>\n
Looking back at 2025, we were told monetary policy was in a good place. The labor market had stabilized following 75 basis points of rate cuts, and it seemed a soft landing was achieved. That sentiment provided a tailwind for risk assets through much of last year.<\/p>\n
However, the situation today on February 20, 2026, has evolved significantly. January\u2019s CPI data showed core inflation re-accelerating to 2.9% year-over-year, driven by a rebound in services costs. This challenges the old view that inflation was steadily coming down outside of the goods sector.<\/p>\n
The labor market is also much tighter than it was in 2025. The most recent jobs report showed a robust 260,000 positions added, pushing the unemployment rate down to 3.5%. This renewed strength is putting upward pressure on wages and complicates the Federal Reserve’s path forward.<\/p>\n
This data has caused a major repricing in the rates market. Fed funds futures, which had priced in further cuts last year, now suggest the Federal Reserve will hold rates steady through 2026. The probability of a rate hike before year-end, while still low, is now being discussed.<\/p>\n
For traders, this means volatility is likely mispriced. The VIX index, currently hovering around 17, does not seem to reflect the growing uncertainty, making long volatility positions through options attractive. We should consider buying calls on the VIX or straddles on major indices.<\/p>\n
The US Dollar Index (DXY), which traded near 97.8 last year, is now holding strong at 105.2. Given the supportive interest rate differentials, any dips in the dollar should be viewed as buying opportunities. Traders can use currency futures or options to position for continued dollar strength against currencies with more dovish central banks.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Mary Daly says US policy is well positioned; rate cuts improved labor market, inflation easing, dollar up.<\/p>\n","protected":false},"author":62,"featured_media":17025,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42355","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t