The US Dollar has made slight gains overall, but its performance differs among G10 currencies. It fell to a low against the CNY that hasn’t been seen since November during overnight trading. Positive developments in trade agreements have boosted risk sentiment, although worries about tariffs remain. US consumers are facing an average effective tariff of about 20%. This raises short-term inflation concerns and may limit consumer spending.

Potential Inflation Concerns

Even with a temporary rebound in the USD, concerns about inflation and criticism of Federal Reserve policies continue. Futures suggest that we might see around 100 basis points in Fed rate cuts over the next year. Technical analysis indicates the USD is on a bearish path, showing stronger momentum after consolidating in early July. Analysts are closely watching the ECB’s policy decision and US economic indicators, such as PMI data and Initial Claims, for potential impacts on the currency market. We think derivative traders should prepare for a weaker US Dollar in the upcoming weeks. The bearish trend has gained speed, suggesting that any short-term strength may be a chance to sell rather than a sign of recovery.

Federal Reserve Rate Cuts

The market expects significant rate cuts from the Federal Reserve, which is a key reason for this outlook. Futures pricing shows a strong likelihood of policy easing, with the CME FedWatch Tool indicating over an 80% chance of a rate cut by mid-next year. This expected easing will likely continue to put downward pressure on the currency. The impact of higher tariffs on US consumers could further weaken the economy and the Dollar. Recent figures, like the Conference Board’s Consumer Confidence Index dropping to its lowest level in months, suggest that consumer activity may slow down. This economic softness makes it more likely that the central bank will adopt an accommodating policy. We are monitoring key currency pairs where the Dollar shows clear weakness, particularly against the yuan. The Dollar’s decline to a multi-month low against the offshore yuan (CNH) below 7.20 highlights widespread selling pressure. The upcoming European Central Bank decision is vital; any difference from the Fed’s dovish approach could push the EUR/USD pair higher. Our strategy involves buying put options on dollar-tracking ETFs to take advantage of the expected drop. Keeping an eye on important US data points, such as the recent rise in Initial Jobless Claims to over 220,000, will help us find moments to trade or take advantage of volatility around these releases. These figures confirm the fading economic momentum that has been supporting the Dollar. Create your live VT Markets account and start trading now.

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