The US Dollar has bounced back slightly to 97.10 as the European trading session kicks off. However, it might face challenges due to concerns about the independence of the Federal Reserve and the possibility of a US government shutdown. Meanwhile, the USD is gaining against the Japanese Yen, which is weakening due to Japan’s uncertain fiscal plans. Traders are looking forward to the US ADP Employment Change and Consumer Confidence reports scheduled for Tuesday. The market will then shift its focus to the Fed’s interest rate decision on Wednesday. The AUD/USD pair has decreased from its 16-month high, currently sitting at 0.6915, as Australia is awaited to release its Consumer Price Index data.

Fiscal Policies and Currency Trends

The USD/JPY pair has risen above 154.50 due to worries about Japan’s fiscal policy, resulting in a drop in the value of the Yen from its highest point since 2025. In Europe, the EUR/USD is trading below 1.1900, with attention on speeches from ECB President Christine Lagarde and German Bundesbank President Joachim Nagel. The GBP/USD is holding strong at around 1.3685 following positive economic data from the UK, while USD/CAD remains steady at about 1.3735 amid US tariff threats. The Bank of Canada is expected to keep its interest rate at 2.25%. Gold prices have climbed to around $5,085 per ounce, while Silver has increased to $109.85, driven by demand in the industrial sector. With the Japanese Yen weakening due to fiscal concerns, there may be continued softness in the coming weeks. Traders might want to consider purchasing call options on USD/JPY to take advantage of its rise above 154.50. However, caution is advised, as Japan’s Ministry of Finance has a history of intervening in the market, as they did in late 2024 when the pair last approached these levels. The surge in Gold prices to nearly $5,100 an ounce reflects a strong demand for safe-haven assets, a trend likely to continue. This upward momentum is supported by significant central bank purchases, which surpassed 1,000 tonnes annually in both 2023 and 2024. Long positions in Gold futures or call options seem wise to ride this wave, especially with ongoing geopolitical risks and inflation concerns worldwide.

Currency Market Divergences

The US Dollar is facing notable challenges that could limit its growth, mainly due to worries about a potential government shutdown. The market remembers the significant disruption caused by the 35-day shutdown during the winter of 2018-2019, and similar concerns are dampening sentiment now. Therefore, purchasing put options on the US Dollar Index (DXY) can be a strategy to hedge against this political instability. There is a clear divide between the British Pound and the Euro, with the GBP showing strength due to favorable economic data. Recent UK PMI figures confirmed that the services sector is still expanding, reducing the likelihood of any near-term rate cuts from the Bank of England. This strong fundamental position makes long GBP/EUR trades an attractive option. The Australian Dollar is approaching a key resistance level after a significant rally, and the upcoming CPI data will determine its next move. Meanwhile, the Canadian Dollar is being pressured by fresh tariff threats, despite a steady interest rate outlook from the Bank of Canada. It would be prudent to use options to protect any long CAD positions until this political uncertainty eases. Create your live VT Markets account and start trading now.

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