The USD had its worst weekly drop since May 2025 due to political tensions and market changes. The DXY Index hit its lowest point since September, and traders expect the Fed to pause its rate cuts at the next FOMC meeting. USD/CAD dropped 1.6% to 1.37, getting close to support at 1.3660. There have been no confirmed market interventions, which could limit further declines in USD/JPY unless key technical levels are broken.

Euro and Pound Rise

The EUR/USD pair gained from the weaker USD, approaching the 1.1900 level. GBP/USD also climbed, reaching four-month highs near 1.3700, thanks to a general improvement in risk sentiment. Gold soared above $5,100, boosted by geopolitical worries and falling US Treasury yields. Meanwhile, Bitcoin, Ethereum, and Ripple showed slight recoveries after recent drops, closing in on important support levels. In 2025, Tether Gold made up 60% of the tokenized gold market, with a value exceeding $2.2 billion. This indicates rising interest in tokenized assets and a global increase in gold prices. Given the US dollar’s significant decline last week, we should prepare for more weakness. Political pressures and market interventions create a strong case against the dollar. Data from late 2025 shows a continually large US budget deficit, reinforcing this negative outlook.

Strategic Options

With the DXY index testing support at 97.2, we should consider buying put options that benefit from a drop below this level. Buying call options on EUR/USD and GBP/USD provides a straightforward way to trade the declining dollar, especially as these pairs approach yearly highs of around 1.1900 and 1.3700. These trades offer manageable risk while taking advantage of current trends. We should approach the upcoming FOMC meeting with caution, where a pause in rate cuts is expected. This seems already factored into the dollar’s decline, similar to what we saw in early 2020 when a change in Fed expectations led to a weak dollar. So, we shouldn’t interpret a pause as a reason to become bullish on the dollar. Gold’s record rise above $5,100 an ounce clearly shows a flight from the dollar. Central banks reportedly increased their gold reserves at an unprecedented rate throughout 2025. We believe it’s wise to maintain long positions through gold futures or by using call options on gold ETFs to protect against further dollar loss. For USD/JPY, discussions about intervention are causing notable uncertainty, making us watch the 154.35 level from December closely. Implied volatility for currency options is high, making strategies that take advantage of sharp price movements attractive. If the support level is breached, it could lead to a rapid decline, making put options on this pair an appealing tactical move. Create your live VT Markets account and start trading now.

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