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    Ahead of the FOMC meeting, the dollar shows weak momentum with some minor buying trends observed

    by VT Markets
    /
    Jan 28, 2026
    The Dollar is heading into the FOMC decision with weak momentum, despite recent comments from President Trump. In the last three months, there has been a slight trend of buying, but signs show this may be fading.

    Market Position

    BNY reports that the Dollar is currently stronger than it was before the last FOMC decision, but protective hedges remain above the 12-month average. There isn’t a strong “sell U.S.” trend, just a cautious approach to “hedge the dollar.” As the Dollar approaches this week’s FOMC meeting, it shows weak momentum, similar to what we saw during uncertain times in 2025. Recent data indicates that December’s CPI stayed steady at 2.8%, while Q4 GDP growth slowed to 1.5%. This uncertainty is putting pressure on the dollar, as traders are unsure of what the Fed will do next. We’re not seeing panic selling, but hedging activity is up. Currency volatility indexes are climbing towards their 12-month averages. For instance, implied volatility on major pairs like EUR/USD has increased over 11% in the past month. This suggests that traders are more focused on buying protection rather than making large bets against U.S. assets. In this environment, strategies that protect against downside risk in the dollar are preferred, even without strong conviction. Traders may be boosting positions in options on currency ETFs like the Invesco DB USD Bullish Fund (UUP) to manage their risk ahead of a potentially volatile Fed statement. These positions serve as insurance in case the committee leans towards a dovish stance.

    Historical Analysis

    Looking back at the late 2010s, we see a similar trend of cautious positioning before major events. The current “hedge the dollar” approach will likely continue until we receive clearer inflation and employment data in February. Until then, any strength in the dollar will probably be seen as a chance to strengthen defensive positions. Create your live VT Markets account and start trading now.

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