The US Dollar is likely to decline for the third week in a row due to expectations of interest rate cuts by the US Federal Reserve in the coming year. People are waiting for speeches from Fed officials to get clues about future interest rates. Today, the Dollar is weakest against the New Zealand Dollar. Recent data shows that unemployment filings in the US have risen to 236,000, which is higher than the expected 220,000 and last week’s 192,000. In a recent meeting, the Fed lowered rates by 25 basis points, bringing them to between 3.50% and 3.75%. There’s a 75% chance the Fed will keep rates steady in the next month, up from 70%.

Currency Market Analysis

In other markets, the Australian Dollar is trading slightly despite weak job data. The Japanese Yen is under pressure as people expect a rate hike from the Bank of Japan. The Euro remains stable because German consumer prices are steady. Meanwhile, the British Pound is falling due to an unexpected drop in UK GDP, while gold prices are staying near recent highs. As the Federal Reserve officially begins to cut rates, the US Dollar’s downward trend is likely to persist. The rise in weekly jobless claims to 236,000 supports the Fed’s decision to ease its policies. Traders should now focus on further dollar weakness against certain currencies. This shift in policy has been anticipated, following a disinflation trend observed throughout 2024. US inflation peaked at over 9% in mid-2022 but has since fallen, allowing the Fed to ease its policies as the labor market shows signs of softening. However, the Fed’s split vote suggests we may see some volatility during future policy meetings.

Opportunities in Currency Trades

One clear opportunity is with the Japanese Yen, as its policy is tightening while the US Dollar weakens. The Bank of Japan is expected to raise rates, a policy shift that began when it ended negative interest rates in March 2024. Buying puts on the USD/JPY pair could profit from this difference. We should approach European currencies with caution, as the UK’s surprise GDP drop makes the Pound a risky choice. The Euro is stable, but with German inflation steady, its economic strength is not guaranteed. For now, the yen looks like a more straightforward trade against the dollar. Gold and silver are reacting predictably to a weaker dollar and lower interest rate expectations. With gold nearing its highs from late October, buying call options on precious metal ETFs could be an effective way to profit from this situation. This trend is a typical response to the monetary easing currently underway. Create your live VT Markets account and start trading now.

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