Insights 
VT 
The US Dollar (USD) is experiencing mixed movements, trending slightly lower as the Dollar Index (DXY) retreats from the 99 zone, believed to have been a peak following its recent rise. The Japanese Yen (JPY) emerges as the top-performing currency among the majors, reaching a short-term high in the low 153 area. Japan’s government plans to keep monitoring yen weakness impacts, potentially boosting the JPY, despite significant lagging in US/Japan rate spreads.
Potential Challenges for the USD
The JPY’s potential short-term rebound could test recent lows below 150, potentially leading to a stronger recovery, affecting regional foreign exchange markets. The USD has eased below the CNY7.10 level, a one-year low, potentially creating broader challenges for the USD. With limited developments elsewhere, markets await the Fed’s policy decision on Wednesday. Global stocks are mixed to slightly weaker, major bond markets are mostly firmer, and gold is down nearly 2%, approaching $3900.
Limited US data is available, with second-tier housing data, the Richmond Fed Manufacturing Index, and consumer confidence figures unlikely to significantly impact markets. Australia’s inflation data is expected, alongside a speech from RBNZ Governor Hawkesby on central bank independence, a topic of historical importance to New Zealand.
We are seeing the US Dollar ease back from its recent peak near 99 on the DXY index. This pullback seems to be a pause as the market holds its breath for what comes next. All eyes are on the Federal Reserve’s policy decision this Wednesday, which will set the tone for the coming weeks.
The market is uncertain because recent data gives the Fed reasons to go either way. For instance, the September 2025 CPI report showed headline inflation stubbornly at 3.8%, but the last jobs report indicated unemployment ticked up to 4.1%. This indecision makes buying short-term volatility, perhaps through options on major currency pairs, a logical strategy ahead of the announcement.
USD Yen and Yuan Dynamics
The Japanese Yen is showing notable strength, pulling the dollar down towards the 150 level. This is a significant move when we remember the extreme yen weakness of the 2022-2024 period. We believe that if this support level breaks, it could trigger a much larger JPY rally, making USD/JPY put options an attractive way to position for a further slide.
Adding to the dollar’s troubles is the strength in the Chinese Yuan, which has pushed the USD/CNY pair to its lowest point in a year. This move gained momentum after China’s third-quarter GDP figures for 2025 came in stronger than expected, suggesting economic resilience. For us, this reinforces a broader bearish view on the dollar against key trading partners.
We note that gold is softening, even as it holds near the historically high $3,900 per ounce level. This pre-FOMC dip suggests some traders are betting the Fed will remain committed to high interest rates to fight the inflation we’ve seen over the past few years. Consequently, positioning for further weakness in gold through futures or put options could be a valid hedge against a hawkish surprise from the Fed.
