Expectations for Federal Reserve Rate Cuts

The Euro remains steady against the US Dollar, as trade tensions between the US and China and forecasts of more Federal Reserve rate cuts put some pressure on the Dollar. EUR/USD is trading at around 1.1621, slightly down from an earlier peak of 1.1645. The US Dollar Index stands at about 98.88, reflecting a decrease of 0.18% today. The trade tensions are rising, with the US accusing China of economic manipulation. Meetings are planned to discuss China’s trade actions. The US Treasury is ready to assist China but insists on needing the power to impose tariffs due to ongoing provocations. Expectations of additional interest rate cuts from the Federal Reserve are influencing the US Dollar, as markets foresee two 25 basis-point drops before the year ends. A Federal Reserve official noted that the labor market is showing signs of weakness, predicting that these cuts will help lower unemployment and bring inflation back to 2% by mid-2025. In Europe, French Prime Minister Lecornu has delayed pension reforms until after 2027, providing temporary relief from tensions. However, the government will soon face no-confidence votes. Today, the US Dollar showed its strongest performance against the New Zealand Dollar, while experiencing slight declines against other major currencies. With the current strain on the US Dollar, we are looking for chances to profit from its potential weakness. The combination of rising trade tensions with China and the Federal Reserve’s softer approach creates a tough environment for the Dollar. Strategies that benefit from a rising EUR/USD, such as buying call options or setting up bull call spreads, seem appealing in the coming weeks.

Market Analysis and Approach

The market’s expectation for two more interest rate cuts this year is not just a guess; it’s backed by weak economic data. The latest jobs report from September 2025 indicated only 95,000 new jobs created, falling short of expectations and supporting the Fed’s worries. This marks a noticeable slowdown compared to healthier figures seen in 2023 and early 2024, making further rate cuts nearly certain. While US-China trade tensions usually boost the Dollar as a safe-haven asset, the current situation is different. Today’s conflict is directly pushing for Fed rate cuts, making the Dollar less appealing to hold. We believe any tough talk from officials will likely increase predictions of Fed easing and further drag down the currency. With EUR/USD trading around 1.1621— a level not consistently held since 2021— the Euro seems to be gaining momentum. We are considering call options that expire in November with strike prices near 1.1700 or 1.1750 to take advantage of possible gains. These options allow for limited risk if the pair breaks above its recent highs. However, we need to keep a close eye on the political situation in France. The upcoming no-confidence vote on Thursday, October 16, could lead to major fluctuations and potentially reverse the Euro’s recent gains. Traders should think about using protective put options or adjusting their stops ahead of this important event. The overall weakness of the Dollar, seen in its drop against the Canadian Dollar and Swiss Franc, strengthens our stance. This is not just a Euro-related issue, but reflects a broader trend of investors moving away from the Dollar amidst uncertainty in domestic policies. Therefore, we are also considering bearish dollar positions against other major currencies with strong fundamentals. Create your live VT Markets account and start trading now.

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