Insights 
VT 
The US Dollar Index reached 99.25, rising from earlier lows of 98.57, boosted by outcomes from the US-China trade summit and comments from Fed Chairman Jerome Powell. Following a conversation between President Trump and Chinese President Xi, tariffs will be reduced, with China agreeing to resume US soybean purchases.
Fed Chairman Powell cast doubt on a December rate cut, affecting US Dollar performance. The Federal Reserve reduced interest rates by 25 basis points to a 3.75%-4.0% range and ended the quantitative tightening program. Attention is on the ECB’s decision, as it could affect the Euro and USD Index.
The US Dollar
The US Dollar (USD) is the official currency of the United States and the most traded globally, involved in over 88% of foreign exchange transactions, averaging $6.6 trillion daily. The Fed influences USD value through monetary policy, primarily by adjusting interest rates to manage inflation and unemployment, with effects on USD strength.
Quantitative easing (QE), where the Fed increases credit flow by buying US bonds, can weaken the USD. Conversely, quantitative tightening (QT), when the Fed ceases bond purchases, can strengthen it. These measures were pivotal during the Great Financial Crisis in 2008.
We are seeing renewed strength in the US Dollar Index, which is now testing the 104.50 level. This momentum is fueled by recent Federal Reserve commentary hinting that rate cuts are not a certainty for early 2026, coupled with positive dialogue from the APEC summit regarding technology tariffs with China. This situation feels very similar to the dynamic we observed back in late 2019 when the index broke past 99 on similar news.
The Federal Reserve’s cautious tone is understandable given that the latest CPI data for September 2025 showed inflation still persistent at 2.9%, well above the 2% target. Unlike the period in late 2019 when the Fed ended its quantitative tightening, the central bank is continuing to shrink its balance sheet, currently at a pace of about $60 billion per month. This sustained policy tightness provides a strong underlying bid for the dollar.
Major Currency Pairs
This environment suggests that long dollar positions could be favorable in the coming weeks. Traders might consider buying DXY futures contracts, or for a more defined-risk approach, purchasing call options on dollar-centric ETFs like UUP. These strategies would profit if the Fed maintains its hawkish stance into the December meeting and the dollar continues its ascent.
We should also watch major currency pairs, particularly the EUR/USD, as the European Central Bank is expected to be more dovish than the Fed. Selling EUR/USD futures or buying put options on the Euro could be effective ways to express this policy divergence. Expect implied volatility to rise ahead of the next central bank meetings, making option straddles a potential play for those anticipating a big move but unsure of the direction.
