Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, spoke at a conference in Denver about the economy and monetary policy. He emphasized the need for monetary policy to address demand growth and highlighted the importance of staying alert to inflation expectations. Schmid expressed concerns that inflation is still high, even as the labor market cools down but remains balanced. He supports the decision to stop reducing the Fed’s balance sheet and recommends policy changes that encourage liquidity without depending on rate cuts.

US Dollar Performance

He mentioned that financial markets and the real economy don’t seem too restricted, and the cooling labor market might indicate structural changes. Schmid is ready to keep a close watch for any further decline in the labor market. The US Dollar had mixed results against major currencies, with its biggest gain against the British Pound. A detailed currency table captured the percentage changes of the US Dollar against other currencies. These insights come from Agustin Wazne, a Junior News Editor at FXStreet, who specializes in commodities and major currencies. The markets change fast, and FXStreet provides expert insights but does not give personal investment advice. With key figures at the Fed indicating a policy that aims to reduce demand, we need to adjust our expectations regarding any dovish shift. The ongoing inflation concerns mean that the threshold for any near-term rate cuts is very high. This hawkish approach is lowering expectations for a rate cut in December and boosting the US Dollar.

Inflation Report Insights

The recent Consumer Price Index (CPI) report for October 2025 showed headline inflation at 3.2%, reinforcing the idea that the inflation battle is ongoing. Although the labor market is cooling—evident from the last Non-Farm Payroll (NFP) report that added only 170,000 jobs—it’s still robust enough to prevent the Fed from acting. As a result, the probabilities for a December cut on the CME FedWatch tool have dropped from over 65% last week to below 40% now. For currency traders, this supports a long-dollar strategy, especially against currencies from central banks that lean towards dovish policies. Traders might consider buying call options on the US Dollar Index (DXY) or establishing bullish positions in pairs like USD/JPY. The dollar’s strength, particularly against the British Pound, is likely to continue as long as the Fed remains the top hawk. In the rates market, we should expect the yield curve to stay flat or even invert more as short-term rates remain high. This suggests positioning for “higher for longer” by using options on SOFR futures and possibly selling out-of-the-money calls. This scenario creates challenges for stocks, making protective put options on major indices like the S&P 500 a wise defensive move. We have seen this pattern before, especially during the inflation battle of 2022-2023, when markets expecting early rate cuts faced setbacks. The current restrictive policies make non-yielding assets less attractive, explaining why gold struggles to stay above the $4,000 mark. Taking bearish positions on gold futures, such as buying puts or selling calls, aligns with the Fed’s recent messaging. Create your live VT Markets account and start trading now.

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