Mary Daly, the President of the Federal Reserve Bank of San Francisco, stated that inflation has eased more than expected. She noted that the Federal Reserve plans to implement more risk management cuts as the job market weakens. The US Dollar Index dropped slightly by 0.02%, sitting at 99.38 at the time of this report. The Federal Reserve adjusts interest rates to control the economy, which strengthens the US Dollar by attracting foreign investments when rates go up.

Federal Reserve Policy Meetings

The Federal Reserve conducts eight policy meetings each year to assess the economy and make monetary decisions. Each meeting includes twelve officials, including members of the Board of Governors and rotating presidents from regional Reserve Banks. The Fed uses extreme measures like quantitative easing (QE) and quantitative tightening (QT). QE increases the money supply to boost the economy, often weakening the US Dollar. QT decreases the money supply by limiting bond purchases, generally leading to a stronger Dollar. Market reactions to these strategies cause fluctuations in currency and stock prices. Overall market trends and economic data, such as tariffs and asset prices, also play essential roles in these shifts.

Federal Reserve Policy Direction

Recent statements clearly show that the Federal Reserve is preparing for more rate cuts. The focus has shifted from combating inflation to addressing risks related to a slowing economy. This move follows the rate cut made in September 2025. This change is supported by the latest economic data. The Consumer Price Index (CPI) for September 2025 revealed that annual inflation has dropped to 2.1%, which is well within the Fed’s target range. This allows officials to pay more attention to the weak labor market instead of just price stability. The concerns about the job market are justified based on recent data. The jobs report for September 2025 was disappointing, with only 95,000 new jobs created, raising the unemployment rate to 4.2%. This trend of softening employment is what the Fed refers to when mentioning troubling signs. For traders in derivatives, this situation suggests they should prepare for lower interest rates and a weaker US dollar. Volatility is likely to increase as the market adjusts to this slowdown. Options strategies that protect against losses or capitalize on falling bond yields may become more appealing. The US Dollar Index, currently around 99.40, is expected to experience additional selling pressure in the upcoming weeks. Traders can take positions through put options on dollar-tracking ETFs or favor currencies like the Euro and Pound Sterling. Interest rate futures indicate there’s over an 85% chance of another rate cut at the November 2025 FOMC meeting. Create your live VT Markets account and start trading now.

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