The US Dollar is gaining strength, pushing the EUR/USD below 1.1900. This shift comes after Kevin Warsh was nominated as the new Fed chair and there were unexpected increases in US Producer Prices in December. GBP/USD is also feeling the pressure, retreating toward three-day lows around 1.3700. This drop reflects the dollar’s strength and reactions to the recent announcement about the Fed chair.

Gold Prices Stabilize

Gold prices have leveled off above $5,000 after sharp declines. These drops were due to widespread profit-taking in commodities, a stronger US Dollar, and mixed signals from US Treasury yields. Stellar continues to fall, hitting a three-month low under $0.20 as negative sentiment lingers. This decline is supported by decreasing Open Interest and negative funding rates in the derivatives markets, suggesting more corrections are likely. Bitcoin, Ethereum, and Ripple have also seen significant sell-offs, with weekly losses nearing 6%, 3%, and 5%, respectively. Bitcoin is close to its November lows at $80,000, while Ethereum has dropped below $2,800, facing increased downward pressure.

Impact of New Fed Leadership

The appointment of Kevin Warsh as the new Fed Chair is currently the key driver for the market. His typical hawkish approach, along with the unexpected rise in producer prices in December 2025, is boosting the US Dollar. The US Dollar Index (DXY) has surpassed the 105.50 resistance level, indicating this trend will likely continue in the coming weeks. This dollar strength opens up straightforward trading opportunities by shorting other major currencies. With EUR/USD dropping below 1.1900 and GBP/USD testing 1.3700, buying put options on these pairs seems like a solid strategy. The market is aggressively expecting higher US interest rates, and this adjustment is far from over. Uncertainty surrounding the new Fed leadership is generating considerable fear in the equity markets, leading to more volatility. The VIX, our fear gauge, spiked over 35% last week, closing above 28—a level not seen since early 2025’s banking troubles. Given the heavy selling in tech giants like Microsoft, purchasing puts on the Nasdaq 100 index is a wise move to hedge against further downside. After the high inflation rates of 2024 and 2025 pushed gold prices to record levels, a more hawkish Fed is prompting a significant reassessment. A strong dollar and rising yields are unfavorable for non-yielding assets, making the profit-taking we see in gold above $5,000 a logical response. This pullback seems likely to persist, making put options on gold futures an appealing short-term strategy. The risk-off atmosphere is impacting the crypto markets, with Bitcoin nearing the critical support level of $80,000 seen back in November 2025. Negative funding rates in the derivatives market indicate that sentiment is overwhelmingly bearish among traders. It’s prudent to maintain short positions on Bitcoin and Ethereum futures until the overall market fear diminishes. Lastly, we need to keep an eye on the Japanese Yen, as recent data shows traders are quickly pulling back their bearish bets. The net short position declined from ¥-44.8K to just ¥-33.9K, indicating a notable weekly change. This could signal a shift towards safety. If equity markets continue to weaken, the yen may strengthen even against the dominant US Dollar. Create your live VT Markets account and start trading now.

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