The US Dollar has weakened after the Federal Reserve’s meeting, with the Dollar Index closing near 98.00. This drop is due to lower expectations for interest rates and typical end-of-year market pressure. Interest rates decreased, with the two-year rate falling to 3.50%. The market expects the Federal Reserve’s final rate to be 3.05% by the end of next year.

Market Stability Insights

The US market calendar is light right now, which may help stabilize things after recent risk events. Some caution in the stock market could support the Dollar. Currently, the DXY is around 98.350, with a chance it may fall slightly to 98.200. These insights come from the FXStreet Insights Team, who gather views from market specialists and analysts. The US dollar is continuing to fall after this week’s Federal Reserve meeting. The Dollar Index (DXY) is now testing the 98.00 mark, following our expectations based on the central bank’s announcement. This downward trend is mainly due to changing expectations about interest rates. After the latest CPI report for November 2025 showed inflation easing to 2.8%, the market now anticipates a terminal rate of only 3.05% by the end of 2026. According to data from the CME FedWatch Tool, the chance of a rate cut in the first quarter of 2026 has risen to over 60%.

Seasonal Dollar Weakness

We are also entering a time of seasonal weakness for the dollar, adding to the downward pressure. Traditionally, December has been tough for the DXY, as seen in seven of the ten years from 2015 to 2024. This trend is often linked to end-of-year portfolio adjustments and lower market liquidity. Given this scenario, traders might consider buying put options on dollar-tracking ETFs like the Invesco DB USD Bullish Fund (UUP). This approach allows for defined-risk profits from further dollar declines through January 2026. Alternatively, buying call options on currencies like the Euro or Japanese Yen offers another way to benefit from dollar weakness. For those who think the most significant decline has passed, establishing bearish credit spreads on the DXY or related futures could be wise. Selling a call option while buying a more distant out-of-the-money call creates a position that profits if the dollar remains below a certain level. This strategy takes advantage of both the downward trend and possible stabilization in market volatility. We also recommend that companies with substantial US dollar receivables review their hedging strategies. Using forward contracts or currency options can lock in exchange rates for the first and second quarters of 2026, protecting against further value loss. This is especially important for businesses with tight margins that are vulnerable to foreign exchange changes. Create your live VT Markets account and start trading now.

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