The US Federal Reserve (Fed) is about to announce its monetary policy, and markets are anxious. The US Dollar’s recent recovery is on hold as traders wait for the Fed’s decision. Currently, the US Dollar is the weakest against the Australian Dollar. The Fed is anticipated to cut interest rates by 25 basis points, bringing them to between 3.5% and 3.75%. Traders expect a hawkish stance due to inflation worries, even though the labor market is slowing down. Meanwhile, US President Trump is interviewing candidates for the next Fed Chair, with Kevin Warsh in the running. In October, US job openings increased by 12,000 to 7.67 million. According to ADP, private companies added an average of 4,750 jobs each week in November. Over in China, the Consumer Price Index (CPI) rose 0.7% year-on-year, but it dropped monthly, suggesting deflationary trends. The Australian Dollar has gained against the US Dollar, while the Japanese Yen is also rising due to expectations of differing policies between the Fed and the Bank of Japan (BoJ). The USD/CAD pair is waiting for the Bank of Canada’s policy decision. EUR/USD is below 1.1650 as ECB President Lagarde speaks at an event. GBP/USD is around the 1.3300 mark, showing lack of strong buying interest. Gold stays above $4,200, and Silver has reached record highs over $61. Everyone is focused on the Federal Reserve’s decision later today. We’re expecting a 25 basis point rate cut, but the key will be Jerome Powell’s guidance about future policies. The market expects the cut, so any surprises will likely come from the outlook for 2026. Reasons for this rate cut include a weakening labor market, a big drop from previous years. Although job openings are decent at 7.67 million, the private sector is adding only about 4,750 jobs each week, far below the average of over 150,000 throughout most of 2024. This slowdown in hiring is pushing the Fed to act, despite other concerns. However, we should be ready for a hawkish message since inflation has been stubbornly high. After the aggressive rate hikes of 2022-2023, core inflation has struggled to remain below 3.0%, making officials cautious. This mix of a slowing economy and persistent prices suggests volatility at today’s meeting. This situation creates varied trends in currency markets, especially with the Japanese Yen. While the dollar dips on rate cut expectations, USD/JPY stays around 157, as the Bank of Japan hasn’t moved away from its loose policies in 2024 and 2025. Thus, we might want to bet against a weak dollar versus the Euro while still betting on a strong dollar against the Yen. With high uncertainty about the Fed’s message, option strategies are appealing in the coming weeks. We believe purchasing volatility through straddles or strangles on major pairs like EUR/USD could be beneficial, allowing us to profit from big price movements after the market digests the Fed’s full message. Record prices in precious metals, with gold over $4,200 and silver above $61, show the market’s high anxiety. This is not only about rate cuts; it’s also about ongoing geopolitical risks and a shift away from fiat currencies, supported by significant central bank gold purchases that accelerated through 2023. These metals act as indicators of systemic risk, so we should monitor them closely. Lastly, the political landscape adds another layer of uncertainty for long-term investments. President Trump’s search for a new Fed Chair introduces unpredictability about monetary policy in 2026. A dovish choice like Kevin Hassett could lead to much lower rates, significantly impacting long-dated interest rate swaps and the yield curve.

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