The US Dollar (USD) is experiencing mixed to lower trading against major currencies, continuing the decline seen last Friday. The New Zealand Dollar has shown strength after a slight increase in the unemployment rate, while the Chinese Yuan has dipped slightly due to a disappointing rate from the People’s Bank of China. Stock markets are holding steady, even as the US threatens higher tariffs on India for its oil purchases from Russia. Crude oil prices are rising amid potential US actions to restrict Russian oil supply. Recent US economic data indicate a ‘stagflationary’ environment, with both manufacturing and services struggling, and job growth shrinking in these sectors.

US Dollar Sentiment

Current sentiment for the USD is weak, with the DXY index close to recent highs. Short-term charts show that the important support level at 98.55 is under pressure. The US Treasury will conduct a 10-year sale after a lackluster three-year auction. While Federal Reserve speakers are set to speak later today, there are no major US data reports expected. Signs of stagflation complicate trading decisions. For instance, data from July 2025 shows inflation at 3.8%, while job growth slowed to only 80,000, indicating stagnant activity and ongoing price pressures. This economic climate suggests we should be ready for unstable market conditions. The current economic environment is putting stress on the US Dollar, with the DXY index around 98.70. We see the 98.55 support level as crucial; breaking below could indicate a more significant decline for the dollar. Looking back at the rate hikes in 2022-2023, the dollar weakened when growth fears overpowered inflation concerns, a trend we might be seeing again.

Federal Reserve Dilemma

The Federal Reserve is facing a tough challenge, trying to fight inflation while also supporting a weakening economy. This uncertainty is increasing market volatility, with the VIX index rising from 15 to over 22. Traders should consider buying options to guard against sudden moves, as implied volatility is expected to stay high. With the dollar’s weakness, there are opportunities in other currencies such as the New Zealand Dollar, which is performing relatively well. Selling USD/NZD call options or buying the pair could be a smart strategy. On the other hand, the weakness of the Chinese Yuan suggests caution, making pairs like the AUD/CNH less appealing for now. Crude oil is a key focus, with WTI prices nearing $95 per barrel due to ongoing supply worries. Possible new US sanctions on Russian oil exports are supporting prices. We believe buying call options on oil futures or energy stocks can be a way to participate in potential upside while managing risk. Create your live VT Markets account and start trading now.

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