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VT 
The article lists related financial news, such as the EUR/USD steadying amid Fed division and a Dow Jones climb amid rate cut hopes. It also covers other Fed members’ views, like Jefferson acknowledging risks in the Fed’s mandate and Logan warning about persistent inflation pressures.
Editors Picks
The editor’s picks highlight market movements in currencies like EUR/USD and GBP/USD, with gold facing resistance near certain price levels. It also mentions trends in cryptos including Bitcoin and Ethereum. The piece ends with a list of top brokers for 2025, featuring various aspects of brokerage offerings and considerations for trading different assets globally.
With a key Federal Reserve official pushing for more rate cuts, we see a clear divide within the central bank. This disagreement, especially ahead of the October FOMC meeting, creates significant uncertainty. Traders should prepare for heightened volatility as the market digests these conflicting signals.
Economic Data and Trends
The argument for rate cuts is gaining some ground with recent data. September’s CPI report showed headline inflation cooling to 2.8%, moving closer to the Fed’s target. However, core services inflation remains sticky, holding above 3.5%, which gives hawkish members a reason to push for a pause.
This cooling trend is also reflected in the labor market, as the latest non-farm payrolls report showed a gain of only 150,000 jobs. More importantly, annual wage growth moderated to 3.8%, easing fears of a wage-price spiral that concerned us through much of 2024. This gives the Fed more breathing room to consider easing policy without overheating the economy.
On the housing front, we are seeing the very early signs of a shift that could support the dovish view. Recent data from the Case-Shiller index showed a fractional 0.2% month-over-month decline in home prices. While small, this is the first such drop since the brief dip we saw in late 2024, adding a new variable to the inflation outlook.
Given this backdrop, we should consider strategies that profit from price swings. The VIX index has been elevated above 20 for the past two weeks, indicating market nervousness, which makes buying options attractive. We believe long straddles or strangles on major indices like the S&P 500 could be effective ways to trade the expected price action around the next FOMC announcement.
For those focused on interest rates, derivatives tied to the federal funds rate suggest the market is pricing in about a 60% chance of a 25-basis-point cut by year-end. We see value in positioning for this potential cut using SOFR futures or options. Hedging these positions is crucial, as a hawkish surprise from the Fed could cause a sharp reversal.
In the currency market, this dovish tilt from a Fed official puts downward pressure on the U.S. Dollar. The EUR/USD climbing toward 1.1750 reflects this expectation of narrowing interest rate differentials between the Fed and the ECB. We believe going long on the euro against the dollar offers a direct way to trade this policy divergence.
