The US Dollar bounced back by the end of the week after recent losses. The US Dollar Index finished near 99.00, influenced by a disappointing US Nonfarm Payrolls report that showed only 73,000 jobs were added in July. The US unemployment rate ticked up to 4.2%, while average hourly earnings grew by 3.9% annually. These economic signals suggest possible interest rate cuts by the Federal Reserve in September.

US Treasury Yields

US Treasury yields dropped, reaching their lowest points in weeks for various maturities. Now, attention will turn to the upcoming ISM Manufacturing PMI and U-Mich Consumer Sentiment reports. Technically speaking, if the US Dollar Index (DXY) continues to fall, it could hit a multi-year low of 96.37 from July. On the other hand, if it rises, it could test the 100.25 level from early August. The US Dollar serves as the official currency of the United States and has been the world’s reserve currency since World War II. The Federal Reserve plays a big role in influencing the Dollar through monetary policy, adjusting interest rates based on inflation and employment data. Quantitative easing and tightening also play a significant role in the Dollar’s strength, affecting liquidity in financial markets.

Options And Derivatives

Given the weak jobs report for July 2025, we expect the US Dollar to trend lower. With only 73,000 jobs added, the chances of a Federal Reserve rate cut in September increase, which would weaken the dollar’s yield advantage. This changes the market landscape that has been stable for the past year. This uncertainty is evident in the options market. The VIX index, which measures stock market volatility, has risen from around 14 to over 18 in the last week. Historically, a sudden slowdown in the labor market combined with persistent inflation results in higher volatility. This indicates that holding a short position may be risky, and using derivatives to manage risk is a smarter strategy. For derivative traders, buying put options on the US Dollar Index (DXY) could be a good move in the coming weeks. This strategy allows us to prepare for a decline toward the July low of 96.37 while keeping our potential loss limited to the amount we pay for the options. We should focus on September expiration dates to benefit from potential changes after the Fed’s next meeting. Looking back to the summer of 2019, we see a similar situation. Weak economic data led the Fed to start cutting rates after a series of hikes, resulting in ongoing dollar weakness and increased volatility— a pattern that might be repeating now. Recent Commitment of Traders reports indicate that large investors are starting to take net short positions against the dollar, reflecting this shift in sentiment. Another way to express this outlook is through currency pairs sensitive to interest rate changes, like the dollar against the Japanese yen. With US Treasury yields at multi-week lows, the incentive to hold dollars over yen is decreasing. Thus, we consider shorting USD/JPY futures or buying puts on that pair as a reasonable alternative strategy. As we look ahead, we must closely monitor the upcoming ISM Manufacturing PMI and University of Michigan Consumer Sentiment reports. Weakness in these figures would strengthen the bearish outlook for the dollar. However, unexpectedly strong data could lead to a sharp reversal, making it wise to use options to limit our risk. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now