The US Dollar has been fluctuating after President Trump mentioned CEA head Hassett as a possible candidate for the Fed Chair. This news weakened the USD and steepened the US yield curve, according to Scotiabank’s Chief FX Strategists. The DXY, which tracks the USD against a group of major currencies, is feeling pressure as its yield advantage diminishes. Scandinavian currencies and the British pound have risen by 0.5-0.6%, while the DXY has dropped to recent lows, facing the risk of further losses. Although the index has risen since September, the narrowing yield indicates a bearish trend for the USD.

Mixed Global Stock Markets

Global stock markets are showing mixed performance, with Asian and European markets varying, while US equity futures are climbing. After a period of instability in tech stocks in November, risk sentiment has stabilized, but concerns remain. For example, Oracle Corp’s credit default swaps have widened, suggesting a 5-year default probability over 10%. Technical analysis reveals that the DXY has reached the 99.0 support zone. It may form a double top pattern after a previous peak at 100.4 in November. If it breaks below this level, it could decline further, possibly targeting 97.6. This analysis comes from insights by the FXStreet Insights Team, highlighting market trends and expert opinions. We remember the market’s strong response years ago to signs of a more dovish Federal Reserve, which caused the dollar to weaken significantly. This past event serves as a useful reference as we navigate December 2025. It shows that even a hint of a policy change can significantly impact currency markets. The dollar’s interest rate advantage is slipping again as we approach 2026. The most recent core inflation report from November 2025 was at 2.8%, leading to expectations that the Fed’s tightening cycle may be over. As a result, interest rate futures are now anticipating at least two rate cuts before next year’s end.

Trading Opportunities and Risks

For traders dealing in derivatives, this suggests preparing for a weaker dollar and increased volatility in the coming weeks. Buying put options on the DXY or using option collars could provide a defined-risk strategy to benefit from this expected decline. We are seeing increased interest in 3-month euro call options against the dollar, indicating a growing bias from institutional investors. Currently, the DXY is having a hard time maintaining support around the 106.5 level, which held steady through November. If it breaks below this level, it could move toward the 200-week moving average, around 104.0. Traders might consider using bearish put spreads to set up for this potential move while managing premium costs. While the primary expectation is for dollar weakness, we are also noticing stress in corporate credit. Spreads on lower-rated corporate bonds have widened by more than 50 basis points since October, creating concern in equity markets. This suggests that trading should be managed carefully, as a broader risk-off sentiment could complicate a simple short-dollar position. Create your live VT Markets account and start trading now.

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