On August 7, 2025, major US stock indices ended mixed, with the NASDAQ showing slight gains. President Trump nominated Stephen Miran to temporarily take Kugler’s position on the Federal Reserve Board. US consumer credit in June rose to $7.37 billion, exceeding the expected $7.00 billion. Meanwhile, crude oil futures settled at $63.88. The US Treasury sold $25 billion in 30-year bonds at a top yield of 4.813%. In geopolitical news, Israel’s Netanyahu announced plans to take control of Gaza. The US dollar closed lower or mixed against major currencies, with notable declines against the GBP and NZD. The Bank of England’s Governor mentioned that economic conditions were balanced, impacting the GBP/USD exchange rate. The BOE reduced the bank rate by 25 basis points to 4.00%. US wholesale sales edged up by 0.3%, while initial jobless claims climbed to 226,000, reflecting potential weaknesses in the labor market. Labor costs for Q2 increased by 1.6%, while labor productivity rose by 2.4%.

Fed’s Cautious Optimism

Atlanta Fed President Bostic shared cautious optimism, highlighting strong US economic fundamentals but also predicting slowdowns. He expressed concerns about declining pandemic savings and tariffs that could raise prices. A rate cut from the Fed seems likely, depending on future data. Most major European indices closed higher, except for the UK’s FTSE 100, which reacted to the BOE’s rate cut. In the US stock market, the Dow fell by 0.51%, while the NASDAQ increased by 0.35%. US yields rose, with the two-year yield climbing to 3.723%. Bitcoin jumped by $2,456.02, reaching $117,487 after President Trump signed an executive order permitting 401(k) investments in bitcoin and other alternative assets. With a somewhat weakening labor market and the Federal Reserve’s hawkish signals, we expect increased volatility in the weeks ahead. The differing approaches of a rate-cutting Bank of England and a cautious Fed create uncertainty, making long volatility positions on options for major indices like the S&P 500 appealing. Historically, the VIX index, which measures volatility, has spiked during times of Fed policy confusion, such as in 2022 when it averaged over 21.

Federal Reserve’s Interest Rate Stance

We expect the Federal Reserve to keep interest rates higher for an extended period. The nomination of Stephen Miran, potential promotion of Christopher Waller to Fed Chair, and Raphael Bostic’s focus on inflation from tariffs indicate a hesitation to cut rates soon. This is further supported by weak demand in the latest 30-year bond auction, suggesting that traders might want to consider derivatives that benefit from steady or rising yields, similar to the market adjustments seen for rate cuts in 2024. In the foreign exchange market, the British pound’s rise against the dollar, despite a rate cut, suggests the Bank of England is unlikely to aggressively ease in the future. The close 5-4 vote reveals deep divisions, meaning further cuts are uncertain and will heavily rely on incoming data. This indicates that betting on a clear trend for the GBP/USD exchange rate could be risky; therefore, range-trading strategies or options benefiting from significant price movements in either direction may be wiser. The contrasting performance in the stock market, with the tech-heavy NASDAQ rising while the Dow Jones Industrial Average dipped, indicates a sector rotation. The executive order allowing 401(k) investments in bitcoin is boosting technology and crypto-related assets. We see potential in pair trades, such as going long on NASDAQ 100 futures while shorting Dow Jones futures to take advantage of this divergence. Bitcoin’s stunning rise to over $117,000 is a direct result of new demand from retirement accounts. This situation echoes the price surge following the approval of spot Bitcoin ETFs in early 2024, suggesting this momentum could continue. At the same time, crude oil’s drop to around $63 raises worries about a global economic slowdown, making bearish positions on oil futures a viable hedge against the broader economic uncertainties flagged by Fed officials. Create your live VT Markets account and start trading now.

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