Insights 
VT 
The US dollar remains steady despite a busy week of central bank decisions. Cyclical sensitive currencies are outperforming, and global equity markets are rallying due to positive trade developments.
The US has reached trade agreements with Malaysia and Cambodia and established reciprocal trade frameworks with Thailand and Vietnam. Efforts are underway to restore trade ties with Brazil. Top trade negotiators from the US and China have developed a preliminary framework for a trade agreement before the meeting between President Donald Trump and President Xi Jinping.
Central Bank Activities And Market Impact
Central bank activities might cause some market volatility but are unlikely to disrupt the USD, which has remained within its range since June. The expectation over the next three to six months is for a slight decline in the USD, impacted by lower US rate expectations and trade policy adjustments.
Treasury Secretary Scott Bessent announced the five finalists for the next Federal Reserve chair. The candidates are Kevin Hassett, Kevin Warsh, Fed Governor Christopher Waller, Fed Governor Michelle Bowman, and Rick Reider. All have supported looser policy settings, with President Trump planning to announce his selection by the end of the year.
Global equity markets are rallying on positive trade developments, with the S&P 500 gaining over 4% in the past two weeks alone. This risk-on sentiment favors cyclical currencies, suggesting short-term opportunities in call options on currencies like the Australian dollar or commodity-linked futures. The dollar, meanwhile, is holding steady within the range it has maintained since June 2025.
Our base case over the next three to six months is for the US dollar to weaken, driven by expectations of a more dovish Federal Reserve. This view is reinforced by the list of five potential Fed chair candidates, all of whom have previously argued for looser monetary policy. Traders could begin to structure positions for this expected decline, such as by purchasing put options on USD-tracking ETFs with expirations in early 2026.
Upcoming Fed Chair Announcement
The upcoming Fed chair announcement by year-end is the most significant catalyst, and implied volatility in currency options is likely to rise as the date approaches. We saw a similar dynamic in late 2023 when markets began aggressively pricing in rate cuts, causing a sharp, albeit temporary, dollar sell-off. This historical precedent suggests that any confirmation of a dovish chair will accelerate the dollar’s downward trend.
This week, central bank meetings are expected to create some market choppiness but are unlikely to break the dollar’s established range. Data shows the CBOE Volatility Index (VIX) has fallen to a yearly low of 13.5, indicating current market complacency that could be easily disrupted. This environment may favor short-dated, range-bound strategies like iron condors on major currency pairs until a clearer trend emerges.
