The USD Index is above 99.00 as everyone awaits the Federal Reserve meeting. The market is expecting the Fed to cut rates by 25 basis points for the third time in a row, with attention on what the Fed might say about future cuts. The Dollar Index is steady after a small dip at 99.30 but remains supported above 99.00. Traders are looking forward to the Fed’s decision on monetary policy and the “dot plot” that indicates possible future rate changes.

Modest Bearish Pressure

The index, which measures the USD against six currencies, is experiencing slight bearish pressure due to adjustments in long USD positions. Nevertheless, strong US Treasury yields are helping a mild recovery that has lasted for a week. Recent data from the US shows a rise in job openings, reaching 7.67 million in October. This, along with solid inflation data, supports a more cautious viewpoint from the Fed and challenges expectations for further rate cuts. The Federal Reserve plays a key role in monetary policy, setting interest rates to manage inflation and employment. Cutting rates can weaken the USD because it often leads to capital moving to investments with higher returns. The Fed’s decision is expected on December 10, 2025. With the Federal Reserve likely to cut rates by 25 basis points to 3.75% today, the market has already anticipated this move. Therefore, our main focus is on the Fed’s guidance from the dot plot and Chairman Powell’s press conference. The crucial point is whether the Fed will confirm the market’s expectations for two to three more cuts in 2026.

Potentially Hawkish Tone from the Fed

Recent data may lead to a more aggressive stance from the Fed, even with a rate cut. The core PCE inflation index, which the Fed prefers, has stubbornly stayed above 3.3% year-over-year in the latest November data, far exceeding the 2% target. This combined with strong job openings data gives Chairman Powell a reason to suggest a pause on further cuts. We remember the Fed’s “higher for longer” position throughout 2023, where they resisted calls for early cuts until inflation was under control. This history reminds us not to underestimate their willingness to pause rate cuts if the data doesn’t fully support it. A hawkish surprise today could easily push the DXY back toward the 100.00 level. Given the uncertainty around the dot plot, we expect increased volatility in the US Dollar Index. Traders might explore strategies like straddles on USD-related currency pairs to benefit from significant moves in either direction after the announcement. For those anticipating a hawkish surprise, buying call options on the DXY or selling puts on the EUR/USD might be a good strategy. Create your live VT Markets account and start trading now.

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