After the Federal Open Market Committee meeting, many investors decided to take profits. Fed Chair Jerome Powell described the recent rate cut as a “risk management cut,” which was not what the market expected. Investors were hoping for an additional 150 basis points in cuts this year and next but found Powell’s comments disappointing, as he did not suggest a more aggressive approach.

Market Fluctuations

As a result, the S&P 500 fluctuated and is now down by 28 points. Initially, there was selling of the US dollar and buying of gold, but this trend reversed after the meeting. After the Fed’s “risk management cut” on September 17, 2025, market disappointment became clear. Powell didn’t hint at the series of rate cuts that traders had anticipated. We may now face increased volatility as the market adjusts its expectations for the remainder of the year. This uncertainty is reflected in the VIX index, which has soared over 20% to around 22.5, a level not seen since last spring’s banking troubles. For derivative traders, buying near-term put options on the S&P 500 could be a smart way to hedge against the current wave of profit-taking. With volatility likely to remain high, strategies that capitalize on price fluctuations may be beneficial.

Dollar Reversal

The US dollar has completely reversed its initial losses and is now strongly positive. A less-dovish Fed suggests that US interest rates could stay higher for longer compared to other countries, which supports dollar strength. We saw a similar reaction in the summer of 2019 when Powell used “mid-cycle adjustment” language, causing a sharp market shift. This renewed strength in the dollar makes call options on dollar-tracking ETFs an attractive trade. The market’s expectation of an additional 150 basis points in cuts seems overly optimistic. The 2-year Treasury yield, which reacts quickly to Fed policy, has barely moved and is now rising, indicating that bond traders also doubt significant cuts are on the way. Gold has been adversely affected by a stronger dollar and the Fed’s cautious approach. It has lost all gains from after the announcement, falling over 2% from its session high and dropping below the important $2,150 level. Given this shift, buying put options on gold ETFs could be a direct way to prepare for further declines if the dollar continues to rise. Create your live VT Markets account and start trading now.

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