The Global Strategy Team at TD Securities has shared insights into the current market trends affecting the USD. According to their report, Treasuries are calm, and rates are steady. All eyes are on the upcoming FOMC meeting, where the Federal Reserve is expected to keep its current policies. They also discuss how political changes are impacting the USD and overall market mood. In January, the S&P Composite PMI rose to 52.8 from 52.7. The University of Michigan index was revised up to 56.4 from 54.0. Both the current conditions and expectations are showing improvement. The FOMC meeting stands out as the key event, and it is expected to be without surprises, as the Fed is likely to remain steady.

Currency Movements

Earlier this week, the USD fell to a four-month low while the JPY gained strength due to concerns about potential interventions. There’s talk about possible coordinated rate checks by the Fed and the BoJ, which could affect market trends. Last January, in 2025, markets were also expecting a quiet Fed meeting with the dollar at a four-month low. However, this year, the situation is different. The Fed’s next steps are less predictable, even after last year’s rate cuts. The current focus is on persistent inflation, which is at 3.2%, and how it may impact future easing. Unlike the calm in Treasuries seen earlier in 2025, there is now a heightened reaction to incoming data. The 10-year Treasury yield is around 3.90%, which is significantly above the 3.5% from the previous year. This trend presents opportunities for traders using interest rate futures to adjust their strategies based on every new data point. With market volatility staying low, the CBOE Volatility Index (VIX) is near 14, indicating a sense of complacency. This environment favors strategies like selling options premium, such as writing covered calls on stock indices or selling cash-secured puts on preferred stocks. However, traders should stay alert for a potential surge in volatility if upcoming employment reports exceed expectations.

Reversal Of The US Dollar

The US dollar has bounced back from its early 2025 weakness. The Dollar Index (DXY) is now around 105, supported by a strong US economy, as shown by over 200,000 jobs added last month. This opens up possibilities for traders to use currency options to hedge or bet on the dollar’s continued strength against currencies with more dovish central banks. Create your live VT Markets account and start trading now.

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