Following the Federal Open Market Committee meeting, there was a wave of profit-taking due to Fed Chair Jerome Powell’s characterisation of the rate cut as a ‘risk management cut.’
The market desires an additional 150 basis points this year and next but was left unimpressed by Powell’s lack of a dovish stance.
Market Fluctuations
In response, the S&P 500 experienced fluctuations and is currently down by 28 points.
There has been a complete reversal from initial US dollar selling and gold buying after the meeting.
Following the Fed’s “risk management cut” on September 17, 2025, the market is showing clear disappointment. Jerome Powell did not signal the aggressive series of rate cuts traders had priced in. We are now positioned for heightened volatility as the market reprices its expectations for the rest of the year.
This uncertainty is visible in the VIX, which we’ve seen jump over 20% to trade near 22.5, a level not seen since the banking tremors last spring. For derivative traders, this suggests that buying near-term put options on the S&P 500 is a prudent hedge against the current profit-taking wave. Volatility is likely to remain elevated, making strategies that benefit from price swings attractive.
Dollar Reversal
The US dollar saw a complete reversal, erasing its initial losses and turning strongly positive. A less-dovish Fed means US interest rates may stay higher for longer relative to other countries, which supports the dollar. We saw a similar dynamic back in the summer of 2019 when Powell’s “mid-cycle adjustment” language caused a sharp repricing, so this reaction has a historical precedent.
This renewed dollar strength makes call options on dollar-tracking ETFs a compelling trade. The market’s expectation for an additional 150 basis points in cuts this year and next now looks overly optimistic. The 2-year Treasury yield, highly sensitive to Fed policy, barely budged and is now climbing, suggesting bond traders also doubt deep cuts are coming.
Gold has been hit hard by the combination of a stronger dollar and the Fed’s cautious stance. It has given back all its post-announcement gains, falling over 2% from its session high to trade below the key $2,150 level. Given this reversal, purchasing put options on gold ETFs offers a direct way to position for further downside if the dollar continues its ascent.
