Insights 
VT 
The US Dollar has experienced a decrease for three consecutive days in Dollar Index terms. This trend is influenced by the anticipation of developments in US/China trade talks and the ongoing US government shutdown. The New Zealand Dollar and British Pound have shown gains, while the Japanese Yen has slightly softened. Global stocks are generally up, and US equity futures are positive. In the bond markets, core bonds remain steady or slightly higher, although French government bonds are underperforming.
Gold prices have reached new cycle highs, rising nearly 6% for the week, despite an earlier drop in Asian trade. Crude oil prices are slightly up due to US pressure on Asian countries to avoid Russian oil. In the absence of new US data, the Dollar may continue its downward trend. The Federal Reserve’s Beige Book indicated a stable economy but noted tariffs are pushing inflation higher. The probability of a 25bps rate cut by the FOMC later this month and another in December is reflected in swap markets.
Federal Reserve and Dollar Expectations
The expectation of easier Federal Reserve monetary policy may hinder Dollar gains. As the US government shutdown continues, key economic data releases are delayed. Central bank speeches from the Federal Reserve, Bank of England, and European Central Bank are expected throughout the day. The Dollar Index suggests a potential decline towards the 97.80/00 level.
The US dollar is showing sustained weakness, and we see the Dollar Index (DXY) currently trading around 98.10 after breaking below key support. This softness is primarily driven by the market’s firm belief that the Federal Reserve is about to start cutting interest rates. The technical picture suggests a further slide towards the 97.80 level in the coming weeks.
We believe this expectation for easier monetary policy is well-founded, as fed funds futures are pricing in a greater than 95% probability of a 25-basis-point rate cut at the FOMC meeting later this month. This follows the dovish signals we received from the central bank during its September 2025 meeting. A second rate cut is now largely expected by the market for December.
Economic Context and Market Strategies
This places the Fed in a difficult position, as the latest September Consumer Price Index (CPI) report showed inflation still running hot at 3.8% year-over-year. The Fed appears to be prioritizing concerns about a slowing economy over its inflation mandate. This dynamic of slowing growth and persistent inflation is a clear headwind for the dollar.
For derivative traders, this environment favors strategies that profit from continued dollar decline and rising uncertainty. Buying put options on dollar-tracking ETFs could be an effective way to position for the DXY’s expected move lower. The ongoing US government shutdown is only adding to the dollar’s woes by delaying key economic data.
Gold is a major beneficiary, having just hit a new cycle high around $2,450 per ounce, which marks a significant rally from its levels in 2024. A weaker dollar and falling real interest rates make holding non-yielding gold more attractive. We see potential for further gains, and call options on gold miners or gold ETFs offer a way to capitalize on this momentum.
We’ve also seen a notable rise in market volatility, with the VIX climbing to 18.5 from lows around 14 just last month. This reflects growing investor nervousness surrounding US political friction and unresolved trade issues with China. Buying protective puts on equity indices or considering long volatility positions could serve as a valuable hedge.
Looking at major currency pairs, the British Pound has been a strong performer, with GBP/USD now testing resistance near the 1.2800 level. In contrast, while the Japanese Yen is slightly softer today, we anticipate the narrowing US-Japan interest rate differential will eventually push USD/JPY lower from its current 151.50 area. A move towards 148.00 seems plausible as US yields decline.
