Market Reactions Before And After The Announcement
Before the decision, the USD/JPY was at 146.29 with two-year yields at 3.543% and 30-year yields at 4.65%. The S&P 500 stood at 6599, gold at $3689, and bitcoin at $116,092. Following the decision, USD/JPY dropped to 145.65, two-year yields fell to 3.476%, and 30-year yields to 4.61%. The S&P 500 decreased to 6603, gold reached $3700, and bitcoin dipped to $115,877.
The Federal Reserve has officially started its easing cycle, confirming what we suspected after recent economic data. The August 2025 jobs report, which showed a gain of only 95,000, gave them the cover to act on their new view that job gains “have slowed.” This pivot suggests that for the next few weeks, the path of least resistance for short-term interest rates is lower.
We should focus on the yield curve, as the 2-year yield dropped more significantly than the 30-year yield immediately after the announcement. This signals a “bull steepener” trade, betting on front-end rates falling faster than long-term rates as the market prices in the two additional cuts forecasted for this year. Traders can express this view using futures by going long 2-year Treasury notes while shorting 10-year or 30-year notes.
Opportunities In A Volatile Market
The S&P 500’s failure to hold its initial rally points to uncertainty over whether this is a “soft landing” cut or the beginning of a larger economic slowdown. Given that Q2 2025 GDP growth was a weak 0.8%, this hesitation is warranted and suggests volatility may rise. This environment is ideal for options traders who can use strategies like straddles to profit from price swings regardless of direction.
With the Fed cutting rates and forecasting more, the US dollar’s yield advantage is shrinking, as seen in the sharp drop in USD/JPY to below 146.00. We should anticipate further dollar weakness, making long positions in gold futures or call options on gold ETFs attractive. Gold already hitting a new record of $3700 confirms this flight to a weaker dollar environment, a trend we also saw during the easing cycle of 2019.
