The US Dollar started strong but then weakened as global risk appetite increased. This shift allowed the Pound Sterling to perform better than other G10 currencies. Despite some market volatility, risky assets saw gains, and gold prices rose due to recent US actions in Venezuela and a softer ISM manufacturing report. These developments hinted at possible Federal Reserve rate cuts. Geopolitical issues, especially disruptions in Venezuelan oil production, and a focus on AI growth are shaping the market. The Federal Reserve has cut rates three times since September 2025 and is expected to continue reducing them into 2026, influenced by changes in leadership.

US Economic Prospects

The US economy may see improvements from AI investments and tax cuts, which could strengthen the Dollar later this year. The labor market will play a crucial role, with key employment data on the horizon. The market is fluctuating rapidly, with gold holding its gains despite resistance from the Dollar, while Bitcoin retraced after reaching new highs. Issues in Venezuela create uncertainties but aren’t expected to change market or economic predictions significantly. Solana prices have recently risen due to strong institutional demand, resulting in significant inflows into exchange-traded funds connected to this cryptocurrency. Currently, the market seems to be at odds with the Fed. It’s predicting at least two rate cuts for 2026, while the Fed hinted at only one cut last year. This disconnect is causing volatility, especially with the important jobs report due this Friday. The CME’s FedWatch Tool shows over a 70% chance of a rate cut by the March meeting, a figure that could shift quickly if labor data exceeds expectations.

Risk-On Mood

With the current risk-on sentiment, we are observing the US Dollar’s weakness against currencies like the Pound Sterling. In Q4 2025, UK core inflation stayed above 3.5%, leading to the belief that the Bank of England will be slower to cut rates compared to the Fed. Options traders should brace for continued volatility in the GBP/USD pair, which recently broke key resistance levels. The ongoing bullish trend in equities is driven by the narrative surrounding AI growth, encouraging investment in technology sectors. We think using derivatives on tech-heavy indexes is a smart strategy for capitalizing on this long-term trend. This belief is backed by late 2025 data from the Bureau of Economic Analysis, which showed business investment in intellectual property products increased at an impressive annualized rate of over 8%. In the commodities sector, the naval blockade in Venezuela is causing short-term disruptions in oil markets. February WTI crude futures have surged over 5% in the past week, trading above $85 per barrel, placing the market in backwardation. Therefore, any options strategy should focus on short-term price movements rather than long-term supply changes. Create your live VT Markets account and start trading now.

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