Expectations for a gentle Federal Reserve (Fed) monetary policy until 2026 are changing market feelings. The US Dollar Index (DXY) has dropped to about 98.30 after recently reaching a weekly high. **US Dollar Performance** The US Dollar is performing unevenly against key currencies, with the strongest showing against the Euro. Gold is thriving, hitting a record high near $4,442 due to a weaker US Dollar and ongoing central bank purchases. Important US data releases are on the horizon, including the ADP Employment Change, Q3 GDP report, Durable Goods Orders, Industrial Production, and Consumer Confidence. Currently, EUR/USD is at about 1.1750, and GBP/USD has climbed to 1.3460 following positive growth news from the UK. AUD/USD is rising to 0.6650 as the US Dollar struggles, although traders are confident that interest rates will remain steady in the upcoming policy meeting. USD/JPY is around 157.00, with Japanese officials warning about excessive currency shifts. **Central Banks and Policy Rates** Central banks aim to keep prices stable in their areas, adjusting policy rates to manage inflation or deflation. They act independently, using tools like interest rates to influence the economy. Decisions reflect board members’ perspectives on economic growth and inflation control. The market believes the Federal Reserve will take a gentle approach until 2026, which weighs on the US Dollar. Recent data shows November’s inflation eased to 2.8%, down significantly from earlier highs in 2025. This strengthens expectations that the cycle of rate hikes that started in 2022 is now over. With the dollar weakening, gold has surged to a historic high above $4,400 an ounce. This trend is supported by central banks that have continued their aggressive buying seen in 2023 and 2024, creating a solid price foundation. Traders might consider long positions through futures or call options to capitalize on this strong upward momentum. For currency traders, this sentiment creates buying options in pairs like EUR/USD and GBP/USD. With the Euro nearing 1.1800, using call options could help profit from continued dollar weakness, especially since the European Central Bank isn’t hinting at immediate rate cuts. Likewise, the Pound’s strength above 1.3450 makes it an appealing long position against the dollar. However, caution is advised with the Japanese Yen, as the USD/JPY pair hovers near 157.00. Japanese officials are warning about excessive Yen weakness, increasing the possibility of sudden intervention that could shift the trend quickly. This makes outright shorting the Yen risky, and traders might consider put options on USD/JPY to protect against unexpected moves. **Christmas Holiday Impact** As we approach Christmas, it’s important to note that market liquidity will be thin in the coming days. This lack of trading volume can cause significant price swings with any news, such as the important US GDP and consumer confidence data due this week. Be prepared for increased volatility and think about adjusting your position sizes. Create your live VT Markets account and start trading now.

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