Fed Meeting In Focus
The Federal Open Market Committee meeting was expected to be supportive for the Dollar, as the Federal Reserve was seen as resisting current expectations for rate cuts. At the January FOMC meeting, the Fed indicated it wanted clear evidence of lower inflation before delivering further rate cuts. The conflict was linked to a view that US inflation could move towards 3.5% rather than 2.0% this summer. Markets still had about 23bp of additional Fed rate cuts priced in by year-end. A calmer equity tone at the start of Monday suggested DXY might not break higher immediately. The original article stated it was produced using an AI tool and reviewed by an editor. Looking back at the analysis from early 2025, the view was for a stronger dollar driven by Middle East conflict and a Federal Reserve reluctant to cut interest rates. This perspective was based on a DXY testing the top of its range near 100.40. That situation gave us a clear signal for dollar strength at the time.What Changed Since Then
The conflict premium in energy markets did initially materialize, pushing WTI crude to nearly $95 per barrel in mid-2025, but that pressure has since eased. As of early March 2026, WTI is trading much lower, around $78 per barrel, as global supply concerns have abated. This has removed a key pillar of support for the dollar that was anticipated last year. The Federal Reserve did push back against rate cut expectations for most of 2025, as expected. However, with the latest CPI report for February 2026 showing headline inflation has cooled to 2.8% year-over-year, the FOMC finally delivered a 25 basis point cut in January. This pivot from the central bank is a major change from the environment we were watching last year. While the DXY did break higher through 2025, it has since retraced and is now holding near 101.50, well off its peaks. Current market pricing, reflected in fed funds futures, now indicates a more than 70% probability of another rate cut by the May 2026 meeting. This suggests the path of least resistance for the dollar is now lower. Given this shift, we should consider strategies that benefit from a softer dollar and falling interest rate volatility. Buying call options on pairs like EUR/USD offers exposure to dollar weakness with defined risk. Additionally, with the Fed’s path now appearing clearer, selling volatility through instruments tied to the VIX index could prove profitable as uncertainty subsides. Create your live VT Markets account and start trading now.
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