The value of the US dollar remains stable despite some challenges. Recent reports about Non-Farm Payrolls (NFP) and the Federal Reserve’s gentle approach have traders expecting easier conditions ahead. There’s a forecast for a 70 basis points cut by the end of the year and an 8% chance of a 50 basis points cut in September. Even with these expectations, the dollar hasn’t hit new lows and has stayed in a consistent range since June. It seems the dollar might be at its weakest point. Some observers are noting similarities to September 2024, when we also saw soft NFP numbers and an “insurance cut,” based on insights from Nick Timiraos.

Difference From Past Trends

One major difference now is that past rate cuts happened while inflation was falling. The expected cuts in September 2025 are happening even as inflation rises. If the economy improves after these cuts, a shift towards more aggressive policies could actually benefit the dollar. Business surveys show a positive outlook, although the labor market still has problems, some linked to past policies from the Trump administration. As these issues become clearer, we will see in the last quarter of the year whether the economy is improving or if deeper problems exist. The Non-Farm Payrolls report from September 5th, 2025, showed a disappointing addition of just 145,000 jobs, yet the dollar remains strong. This resilience implies that the market may have already factored in the worst-case scenarios for the currency. Traders should be careful about increasing short positions on the dollar. We’re seeing strong echoes of September 2024, when a surprising 50 basis points “insurance cut” led to a robust dollar rally. In the two months following that announcement, the Dollar Index (DXY) surged over 4% as the economy proved to be more resilient than expected. This historical context suggests that a rate cut now might not automatically weaken the dollar.

Potential Surprise Strategy

The key difference this time is that the Federal Reserve plans to cut rates while inflation is rising. The latest Consumer Price Index (CPI) shows core inflation at 3.8%. Last year, the Fed was cutting rates in a climate of falling inflation, which gave them more room to maneuver. This current situation may force the Fed to adopt a more aggressive stance if the economy picks up after a cut, potentially supporting the dollar. Given this uncertainty, we recommend traders consider using options to brace for any surprises. Purchasing call options on the dollar or dollar-based assets is a low-risk approach to benefit from a hawkish adjustment, similar to late 2024. Volatility strategies, such as straddles, could be especially useful around the upcoming FOMC meeting announcement. Business surveys, including the latest ISM reports, have remained positive. These suggest the economy is stronger than the current stagnant job market indicates. The next few months will be crucial in determining whether the slowdown is just a short-term shock or a deeper issue. This means it’s wise to stay flexible and be ready for the dollar to gain strength if economic data outside of employment shows improvement. Create your live VT Markets account and start trading now.

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