The US Dollar Index is struggling to stay above 98 as traders expect the Federal Reserve (Fed) to cut interest rates in 2026. Many believe the Fed will lower rates twice by October 2026, while the Fed itself projects only one cut by the end of that year. President Trump is calling for further rate reductions after a recent 25-basis point cut. Right now, the US Dollar has dropped to a new low of 98.13, showing its weakness. This week, the Dollar fell against several major currencies, including a 1.15% decline against the Swiss Franc. Below is the heat map showing these changes, with the base currency listed in the left column and the quote currency at the top.

Focus on Nonfarm Payrolls Data

The US market is turning its attention to the upcoming Nonfarm Payrolls data for November. Important economic figures also on the horizon include Retail Sales and preliminary S&P Global PMI data for December. These reports will give key insights into the economy and can influence the US Dollar’s direction. The Federal Reserve meets eight times a year to decide on interest rates, which impacts the US Dollar. Tools like Quantitative Easing and Tightening can either weaken or strengthen the Dollar, depending on economic needs. With the US Dollar Index sitting close to a seven-week low around 98.13, we should brace for ongoing dollar weakness. The market is forecasting at least two rate cuts by the Federal Reserve in 2026, which is more aggressive than the single cut indicated by the Fed’s own projections. This difference, along with political pressure for lower rates from the White House, creates a negative outlook for the dollar. Recent data supports this view of a slowing economy, backing the market’s expectation of more rate cuts. The latest Consumer Price Index (CPI) for October 2025 dropped to 1.9%, below the Fed’s 2% target, suggesting that inflation is easing. Weekly jobless claims have also been rising, hitting a five-month high last week, indicating a softening job market ahead of next Tuesday’s key jobs report.

Positioning Through Derivatives

In light of this outlook, using derivatives to prepare for a further decline in the dollar seems smart, especially with the November Nonfarm Payrolls data approaching. Buying put options on the US Dollar Index or related ETFs could be a good move to take advantage of a possible downturn. If the jobs numbers fall short of expectations, it could speed up the dollar’s decline and increase the value of these bearish positions. Focusing on specific currency pairs, the dollar’s weakness is most apparent against the Swiss Franc, which gained 1.15% this week. Traders might consider buying call options on pairs like EUR/USD and AUD/USD, or purchasing puts on USD/CHF to target this overarching dollar weakness. These strategies align well with the current trends shown in the currency heatmap. We’ve seen this disconnect between the market and the Fed before, particularly in late 2018 when traders correctly forecasted rate cuts for 2019 while the Fed continued to signal hikes. This historical pattern indicates that we should trust the market’s current pricing more than the Fed’s official projections. Therefore, positioning for a falling dollar in the weeks ahead seems to be the wisest approach. Create your live VT Markets account and start trading now.

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