The United States Gross Domestic Product (GDP) Price Index saw a 2% increase in the second quarter. However, this was lower than the expected 2.4%. In the currency markets, the EUR/USD pair has fallen below 1.1500 due to positive US economic data. Similarly, the GBP/USD has hit a new two-month low, dropping below 1.3300, influenced by a strong US Dollar.

Gold Prices Under Pressure

Gold prices are facing downward pressure, trading near $3,300 as US Treasury bond yields rise. This change is occurring as anticipation builds for the Federal Reserve’s policy updates. The Federal Reserve is expected to keep interest rates steady in their July meeting, marking a fifth consecutive hold. This follows a 25 basis point cut in December, bringing rates to a range of 4.25%-4.50%. Meanwhile, the Bank of Canada has decided to maintain its interest rate at 2.75% for the fourth straight meeting. This follows previous cuts from 5% over several months. With mixed signals in the market, we see potential amid the uncertainty leading up to the Federal Reserve’s meeting. While the US dollar is strong, the 2% GDP Price Index shows inflation is below expectations, hinting that the dollar’s recent strength may not last.

Dollar Strength Amid Economic Uncertainty

We think the dollar’s rise, which pushed EUR/USD below 1.1500, mainly reflects past data, like the strong jobs report from early July 2025 that revealed over 250,000 jobs added. Since inflation appears cooler than expected, it might be wise to buy put options on the US Dollar Index (DXY) as a bet that the dollar will lose some of its recent gains. Gold’s drop to near $3,300 is due to rising US Treasury yields. Still, we see the below-expected inflation figure suggesting yields may be too high and due for a correction. This scenario makes call options on gold an appealing strategy for a potential rebound. Historically, when inflation data is lower than forecasts and a central bank holds rates steady, bond yields typically decline. The Fed has kept rates at 4.25%-4.50% since cutting them in December 2024. Thus, buying call options on Treasury Note futures could be a smart bet, anticipating that bond prices will rise as yields drop. For currency pairs, the GBP/USD’s new two-month low below 1.3300 might signal a turning point. If the market discounts any remaining possibility of a Fed rate hike, pressure on the pound should ease. This provides an opportunity to buy slightly out-of-the-money call options on GBP/USD with short-term expirations. This mixed data environment resembles the volatility seen in mid-2023. Therefore, it is wise to safeguard our positions. Buying options offers a defined-risk strategy, which fits the uncertain trading conditions we anticipate. The Bank of Canada’s decision to hold its rate at 2.75% also reflects a global trend of major central banks remaining patient. This reinforces our belief that the Fed will not take a hawkish stance, supporting a strategy that bets against additional US dollar strength. Create your live VT Markets account and start trading now.

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