Insights 
VT 
Mary Daly, President of the Federal Reserve Bank of San Francisco, reported that inflation has moderated beyond expectations. She mentioned that the Federal Reserve anticipates further cuts in risk management, as the labour market softens.
The US Dollar Index slightly decreased by 0.02%, standing at 99.38 during this update. The Federal Reserve uses interest rate adjustments to manage the economy, strengthening the US Dollar by making it more attractive for foreign capital when rates rise.
Federal Reserve Policy Meetings
The Federal Reserve holds eight annual policy meetings to determine economic conditions and make monetary decisions. These meetings include twelve officials, comprising members of the Board of Governors and rotating regional Reserve Bank presidents.
Quantitative easing (QE) and quantitative tightening (QT) are extreme measures used by the Federal Reserve. QE involves increasing money supply to stimulate the economy, often weakening the US Dollar. Conversely, QT reduces the money supply by withholding bond purchases, typically strengthening the Dollar.
Financial markets continue to react to these economic strategies with varying degrees of currency fluctuation and market responses. The broader market trends and economic data, including tariffs and asset valuations, further influence these dynamics.
Federal Reserve Policy Direction
The latest comments confirm the Federal Reserve is actively signaling more rate cuts are on the way. The policy pivot is clear, moving from fighting inflation to managing risks associated with a slowing economy. We see this as a direct follow-up to the rate reduction that already occurred in September 2025.
This dovish shift is backed by the most recent economic data we have. The September 2025 Consumer Price Index (CPI) report indicated that annual inflation has cooled to 2.1%, well within a manageable range of the Fed’s target. This gives officials the green light to focus on the weakening labor market instead of price stability.
Concerns about the labor market are also well-founded based on the numbers. The last jobs report for September 2025 was disappointing, showing the economy added only 95,000 jobs, while the unemployment rate ticked up to 4.2%. This trend of softening employment is exactly what the Fed is referring to when it mentions worrisome signs.
For derivative traders, this outlook suggests positioning for lower interest rates and a weaker US dollar. We should expect volatility to rise from its recent lows as the market digests this economic slowdown. Options strategies that protect against downside risk or bet on falling bond yields are now more attractive.
The US Dollar Index, currently near 99.40, is likely to face further selling pressure in the coming weeks. Traders can express this view through put options on dollar-tracking ETFs or by favoring currencies like the Euro and Pound Sterling. Interest rate futures are already pricing in an over 85% chance of another rate cut at the November 2025 FOMC meeting.
