The latest auction for the 4-week Treasury bill in the United States showed a yield drop to 3.58%, down from 3.61%. This change mirrors broader economic trends and how financial markets react to ongoing fiscal changes. In Japan, the Consumer Price Index (CPI) rose by 2.9% Year-on-Year in November, with the core CPI increasing as expected. At the same time, Banxico reduced its interest rates from 7.25% to 7%, which was anticipated.

Currency Movements

The EUR/USD is close to the 1.1700 mark as the European Central Bank (ECB) decided to keep interest rates steady. Meanwhile, the US CPI climbed by 2.7% Year-on-Year in November. The GBP/USD fluctuated, initially rising to 1.3440 but settling back at 1.3370 after the Bank of England cut rates and the US CPI announcement. Gold prices fell below $4,350, influenced by weaker short-term futures trading. Cryptocurrencies like Bitcoin, Ethereum, and XRP experienced significant volatility as the US reported its lowest inflation rate in years. The Bank of England recently cut rates to 3.75%, leaving markets questioning future actions. Ripple (XRP) remains stuck between a support level at $1.82 and a resistance level at $2.00, reflecting the current state of the market. With US inflation cooling to 2.7%, the market is aggressively pricing in Federal Reserve rate cuts for early 2026. This follows the historic rate hike cycle of 2023-2024, which raised the Fed Funds rate above 5% to tackle inflation that peaked over 9% in 2022. Traders should consider options on Treasury futures to take advantage of lower yields, especially since the recent 4-week bill auction dropping to 3.58% indicates this trend is already taking shape.

Diverging Central Bank Policies

The differences between central banks are driving foreign exchange markets. While we expect a dovish stance from the Fed, the ECB is indicating higher inflation and growth, and the recent rate cut by the Bank of England was viewed as hawkish. This situation suggests weakness for the US dollar, making long call options on EUR/USD and GBP/USD a smart strategy for the upcoming weeks. Volatility is noticeably high across asset classes, from cryptocurrencies to major currency pairs. The CBOE Volatility Index (VIX), which averaged around 19 for much of 2024, reflects market uncertainty about global central bank actions. We believe buying straddles on currency pairs like EUR/USD ahead of key economic data in January could be an effective way to profit from expected price changes. Gold’s price falling below $4,350 is surprising considering the outlook for a weaker dollar and lower interest rates, which suggests some year-end profit-taking could be affecting the metal. This creates a complicated scenario for precious metals traders. Using option collars, which involve buying a protective put and selling a call option, may be a wise approach to hold a position while guarding against further drops as we enter the new year. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now