The four-week average for initial jobless claims in the United States fell from 218,750 to 211,750 as of January 2. This drop in jobless claims shows the economy’s active nature and also affects currency movements.

Currency Reactions to Economic Data

Strong US job reports caused the Pound Sterling to drop for the third day in a row, pushing the GBP/USD to new lows. At the same time, the USD/CHF gained momentum as it neared the 100-day SMA, while the Japanese Yen weakened, driving up USD/JPY values. The NZD/USD also fell due to tensions in Asia, with the strong US Dollar affecting its performance ahead of the Non-Farm Payroll (NFP) report. The Euro lost ground, dropping to multi-week lows near 1.1650 as the US Dollar rose. Gold is adjusting after a recent decline, focusing on $4,450 per troy ounce as the dollar strengthens and US Treasury yields rise. Bitcoin faced selling pressure amid declining institutional interest, while Ethereum hovered near the 50-day EMA, facing increased risks. Ripple was down for the third straight day amid the volatile cryptocurrency market. After hitting $2.41 on Tuesday, Ripple saw aggressive profit-taking, reflecting changes in early-year trading.

Labor Market and Federal Reserve Policy

The fall in the four-week average jobless claims to 211.75K confirms that the labor market is strong as we enter the new year. This strength is leading to a stronger US Dollar across the board, shifting the market’s mood away from the dovish expectations that were building at the end of 2025. This trend was reinforced by the Non-Farm Payrolls report from December 2025, showing a gain of 235,000 jobs, surpassing expectations. Additionally, the latest Consumer Price Index (CPI) report showed core inflation stubbornly holding at 3.9%. This data makes it hard for the Federal Reserve to ease policies in the near term. With a tight labor market, hopes for an interest rate cut in the first quarter of 2026 are fading fast. The market now expects interest rates to stay high at least through the first half of the year. This reality is boosting the US Dollar. Given this ongoing dollar strength, we should consider strategies that benefit from declines in pairs like EUR/USD and GBP/USD. Buying put options on these currencies provides a defined-risk way to take advantage of a continued downtrend toward their late-2025 lows. The recent drop below 1.1700 in the Euro suggests growing momentum. Gold’s struggle to sustain gains, even after bouncing off its lows, indicates weakness in a high-yield environment. Any rise toward the $4,450 per ounce level should be viewed cautiously. Selling out-of-the-money call options on gold futures could be an effective strategy to earn premium as the strong dollar limits its upside. Markets reacted to profit-taking in volatile assets like Ripple after a brief rally at the start of the year, a pattern we expect to continue. The VIX index was historically low for much of the second half of 2025 but is now showing signs of life, making it a good time to buy protection against anticipated market volatility. The major economic changes of 2025 were absorbed by the market without a significant downturn, but that period of calm seems to be ending. We should now prepare for the direct consequences of a strong US economy and a Federal Reserve that has no reason to cut rates. This environment favors long-dollar positions and a cautious approach to risk assets. Create your live VT Markets account and start trading now.

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