The US dollar edged up, driven mainly by broad weakness in the Japanese yen. US equities also stabilised after S&P 500 futures suggested a calmer open following a 1% drop tied to an AI-led sell-off. Markets are focused on a US Supreme Court ruling on tariffs, which could raise trade tensions and hurt sentiment. Investors are also watching possible new US global tariffs and how they may affect risk appetite.

Dollar Strength And Yen Weakness

Fed Governor Christopher Waller said the chances of a 25 basis point rate cut at the March 17–18 FOMC meeting are about even. However, Fed funds futures currently imply almost no chance of a March cut. The next key release is ADP private employment change for the four weeks to 7 February, due at 1:15pm London (8:15am New York). The prior report said that for the four weeks ending 31 January, private employers added an average of 10.25k jobs per week. January ADP jobs increased by 22k, while non-farm private payroll growth was 172k. The February Conference Board Consumer Confidence index is due at 3:00pm London (10:00am New York). Consumer confidence is expected to rise to 87.1 from 84.5 in January, which was the lowest level in more than a decade. January also showed weaker views of the labour market.

Market Risks And Key Data

The dollar is strengthening mainly because the yen is weak. USD/JPY is hovering near 150.50, a level that has often triggered verbal warnings from Japanese officials. This backdrop may support strategies that benefit from a stronger dollar, but traders should stay alert for sudden policy signals from Japan. After the recent AI-driven sell-off pushed the Nasdaq 100 Volatility Index above 15%, markets are looking for the next direction. This pause may offer opportunities, but the risk of another drop remains. Protective options strategies, such as buying puts on tech-heavy indexes, may be worth considering. With volatility still elevated, option premiums are higher, which can reward well-timed positions. Potential new global tariffs remain a major risk and could cool market optimism. In 2018, US-China trade disputes helped push the VIX above 20 for long periods and hit cyclical stocks hard. A similar risk-off move would likely lift safe-haven assets and pressure global equity markets. There is a clear gap between Governor Waller’s willingness to consider a March cut and what markets currently price in. The CME FedWatch Tool shows only about a 4% chance of a rate cut at the March 18 meeting. That leaves room for sharp repricing if upcoming data is weaker than expected. As a result, derivatives linked to short-term interest rates may react strongly to the next few economic reports. This week’s ADP employment and Consumer Confidence data will be important for expectations around the Fed. Since last month’s confidence reading of 84.5 was a multi-year low, another weak result could make markets take a March cut more seriously. A weak jobs report would likely spark a fast rally in bond futures and put pressure on the dollar. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now