Federal Reserve Governor Stephen Miran mentioned that the economy is now at greater risk than it was just a week ago. Given these risks, it’s important to shift towards a more neutral economic policy. The current strict policy leaves the economy exposed to shocks, and there is uncertainty surrounding the neutral interest rate. Signs of weakness can be seen in the labor market and housing sectors, with two more rate cuts expected this year.

Foreign Exchange Updates

Recent updates indicate that the US Dollar is performing strongest against the New Zealand Dollar. It has shown mixed changes against other currencies, including the Euro, Yen, and Pound. The exchange table shows how different currencies are changing in relation to each other. The US Dollar has gained against the Japanese Yen but lost ground against the Canadian Dollar. This highlights a varied performance of currencies against the Dollar. The article notes that the Exchange Market is quite volatile and suggests exercising caution. Agustin Wazne, who specializes in commodities and major currencies, wrote this piece for FXStreet. The Federal Reserve governor suggests that a restrictive policy has made the economy more susceptible to shocks. This indicates a need to shift towards a neutral stance, hinting at potential interest rate cuts. As risks lean towards a downside, we can expect a more dovish approach from the Fed in the coming weeks.

The Labor Market and Housing Sector

The labor market is showing significant signs of weakness, which supports this viewpoint. The latest jobs report for September, released in early October 2025, showed that nonfarm payrolls added only 95,000 jobs, falling short of expectations, while the unemployment rate rose to 4.2%. This slowdown gives the Fed room to ease policy without worrying about overheating in the job market. There’s also noticeable disinflation in the housing sector, which has been stagnant for months. The most recent Case-Shiller data from late September 2025 confirmed a third consecutive monthly drop in home prices. Coupled with the most recent core CPI reading decreasing to 3.1%, this strengthens the argument that the strict policy has successfully managed price pressures. This outlook suggests it’s wise to prepare for lower interest rates through the end of this year and into 2026. Options on interest rate futures that profit from two more cuts appear realistic. Looking back at the tightening cycle from 2022-2023, we saw how quickly markets adjusted their expectations for the Fed, and a similar adjustment could happen now but in the opposite direction. A weaker US dollar would logically follow a more dovish Fed, as we briefly noticed today against the Euro and Pound. It might be beneficial to use derivatives to bet on further dollar weakness, such as buying call options on pairs like EUR/USD or AUD/USD. Historically, the start of a Fed easing cycle has often indicated a peak for the dollar index (DXY). For equity traders, this market environment could be supportive, making call options on major indices like the S&P 500 appealing, as lower rates ease borrowing costs. The combination of anticipated rate cuts and a weaker dollar is also very positive for gold, which explains its recent surge past $4,200 an ounce. We should expect ongoing demand for derivatives that provide upside exposure to precious metals. Create your live VT Markets account and start trading now.

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