President Donald Trump has once again asked the Federal Reserve to lower interest rates. This comes after the US economy grew by 3.0% from April to June, which was better than expected. Most experts think the Fed will keep its interest rates between 4.25% and 4.50%. The Federal Reserve mainly determines US monetary policy, aiming to maintain price stability and full employment. Adjusting interest rates is their primary method, which affects the US Dollar. When rates go up, the Dollar usually strengthens because it attracts foreign investment. Conversely, lower rates can weaken the Dollar.

Federal Open Market Committee Meetings

The Federal Open Market Committee (FOMC) meets eight times a year to review economic conditions and make monetary policy decisions involving twelve Fed officials. In times of crisis, the Fed uses Quantitative Easing (QE) to boost credit flow. QE involves creating money to buy high-quality bonds, which generally weakens the US Dollar. On the other hand, Quantitative Tightening (QT) stops these bond purchases and usually supports a stronger Dollar. This monetary policy information is for your reference only and not investment advice. It’s wise to conduct independent research before making any investment decisions involving potential risks and losses.

Calls for Interest Rate Cuts

There are renewed requests from the administration for the Federal Reserve to cut interest rates to help the economy. The Fed has already reduced the Fed Fund Target Range to 3.75%-4.00% this past year. However, many expect the Fed to keep rates steady at their next meeting. The Fed’s careful approach is logical, given the latest economic data. In June 2025, the Consumer Price Index (CPI) showed inflation at 2.8%, which is still above the Fed’s 2% target. Although GDP growth for Q2 was a modest 1.9%, this doesn’t indicate an urgent need for stimulus, allowing the FOMC to be patient. This scenario seems similar to 2019 when the previous administration pushed for rate cuts amidst stronger 3.0% GDP growth. Now, with the economy appearing less stable, the Fed faces a tougher decision. For traders in derivatives, the mix of political pressure and economic data creates chances for volatility in the U.S. Dollar. With the US Dollar Index (DXY) around 104, any unexpected dovish comments could lower it. Conversely, a solid, hawkish stance could cause it to rise. We suggest considering long straddles or strangles on currency ETFs like UUP to prepare for a significant price swing without committing to a direction. Investors can also look at interest rate futures to speculate on the Fed’s upcoming actions. Current contracts for Secured Overnight Financing Rate (SOFR) futures suggest a strong likelihood of a rate hold in the next quarter. If you believe the Fed will respond to pressure and announce a surprise cut, buying these futures might be a smart move. Create your live VT Markets account and start trading now.

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