This week, the main highlight is the release of the Federal Reserve’s minutes from its December meeting. The central bank recently cut its rate by 25 basis points, with discussions about another potential cut in 2026 making waves. The US Dollar Index is close to 98.10, as traders expect more rate cuts in the future. The FOMC’s minutes could give insights into policy directions for the upcoming months.

Gold Price Analysis

Gold prices fell 4.50% on Monday, hovering around $4,330 after hitting a peak last week. This drop is attributed to profit-taking amid low trading volumes before the holidays. The GBP/USD pair is trading at about 1.3490, with caution observed ahead of the holidays. UK inflation eased to 3.2% in November, which limits the Bank of England’s options. The EUR/USD pair is around 1.1750, breaking a three-day losing streak on Monday. Meanwhile, USD/JPY sits at 156.20 after a review of minutes from the Japanese monetary policy meeting. Gold acts as a protector against inflation and currency decline. Central banks, especially in emerging markets, have greatly increased their gold reserves. Gold prices typically move in the opposite direction of the US Dollar and Treasuries. Various elements, such as geopolitical issues and interest rates, can affect gold prices.

Federal Reserve and Market Expectations

With the Federal Reserve’s minutes set to be released tomorrow, we can expect increased currency volatility. The market has largely priced in the December rate cut, but the details in these minutes could indicate how aggressive the Fed will be in 2026. Option prices for major dollar pairs are heightened, suggesting traders are preparing for potential movement outside current narrow ranges. The US Dollar Index remains stable near 98.10, but this stability might not last. The CME FedWatch tool shows an 85% chance of rates staying the same in January, so attention is now on the March meeting. Any hints in the minutes about a more dovish approach could push the index below the 98.00 support level, making put options on the dollar an interesting consideration. Gold’s sharp 4.5% decline to $4,330 appears to be an overreaction, intensified by low holiday trading volumes. This drop could present an opportunity, as the reasons for holding gold—such as a dovish Fed and geopolitical tensions—remain robust. Selling cash-secured puts with a strike price around $4,200 could be a way to collect premiums while waiting for a better entry point. It’s worth noting that central banks continue to be significant buyers, a trend that has supported prices for many years. In 2022, they added a record 1,136 tonnes to their reserves, and reports from 2025 indicate that emerging market banks are still buying. This long-term demand provides a strong foundation for the market, making severe downturns less likely. We see a clear policy divide forming between the US and the UK that could be advantageous. While the Fed is cutting rates, UK inflation remains high at 3.2%, preventing the Bank of England from following suit. This should keep support for the pound, making long call options on GBP/USD appealing for a possible rise toward 1.3600. The Bank of Japan is still very cautious, keeping the yen weak against the dollar at USD/JPY near 156.20. Although the interest rate gap favors holding dollars, the risk of sudden policy changes or government intervention is always present. Buying inexpensive, out-of-the-money put options on this pair could serve as a low-cost hedge against an unexpected rally in the yen. Create your live VT Markets account and start trading now.

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