Insights 
VT 
Federal Reserve Rate Cuts Anticipation
The Euro is maintaining its position against the US Dollar as US-China trade tensions and anticipation of further Federal Reserve rate cuts mildly pressure the Greenback. EUR/USD is trading around 1.1621, a slight decrease from an earlier high of 1.1645. The US Dollar Index is around 98.88, down by 0.18% for the day.
Trade tensions are escalating, with the US accusing China of economic coercion. The US will hold meetings to address China’s trade measures. US Treasury emphasises assistance for China but acknowledges the need for tariff-imposing powers due to provocations.
Expectations of more Federal Reserve interest rate cuts affect the US Dollar, with markets anticipating two 25 basis-point reductions by year-end. A Federal Reserve Governor suggests the labour market is weakening and projects policy easing will lower unemployment and return inflation to 2% by mid-2025.
In Europe, French politics sees Prime Minister Lecornu postponing pension reforms until after 2027, easing tensions temporarily. Nonetheless, the government faces no-confidence votes soon. Changes in the US Dollar’s value against major currencies today show it was strongest against the New Zealand Dollar, with various percentage declines against other currencies.
Given the current pressure on the US dollar, we are looking at opportunities that bet on its continued weakness. The combination of escalating trade tensions with China and the Federal Reserve’s dovish stance creates a powerful headwind for the greenback. Options strategies that profit from a rising EUR/USD, such as buying call options or establishing bull call spreads, appear attractive in the coming weeks.
Market Interpretation and Strategy
The market’s expectation for two more interest rate cuts this year is not just speculation; it is supported by weakening economic data. The most recent jobs report from September 2025 showed non-farm payrolls adding only 95,000 jobs, well below consensus and lending credibility to the Fed’s concerns. This is a significant slowdown from the healthier figures we saw back in 2023 and early 2024, making further monetary easing almost a certainty.
While US-China trade tensions have historically acted as a safe-haven driver for the dollar, the dynamic has shifted. Unlike the 2018-2019 period, the current conflict is directly fueling the narrative for Fed rate cuts, making the dollar less attractive to hold. We believe any escalations in rhetoric from officials will likely amplify bets on Fed easing and weigh further on the currency.
With EUR/USD currently trading around 1.1621, a level not consistently held since 2021, momentum appears to be on the Euro’s side. We are considering November expiry call options with strike prices around 1.1700 or 1.1750 to capture potential upside. These derivatives offer a defined-risk way to participate if the pair breaks through its recent highs.
However, we must monitor the political situation in France closely, as it presents a clear risk to the Euro’s strength. The no-confidence vote scheduled for this Thursday, October 16, could introduce significant volatility and quickly erase the Euro’s recent gains. Traders should consider protective put options or tighten their stops ahead of this event.
The broad-based dollar weakness, evident in its decline against the Canadian dollar and Swiss franc, reinforces our view. This isn’t just a Euro-specific story, but a wider trend of investors moving away from the dollar amid domestic policy uncertainty. Therefore, we are also exploring bearish dollar positions against other major currencies that show strong fundamentals.
