Monetary Policy Impact

The New Zealand Dollar is currently below 0.5800 because of differing monetary policies between the Reserve Bank of New Zealand and the Federal Reserve. At the same time, the GBP/USD pair has risen above 1.3400, thanks to positive PMI data from the UK. The USD/JPY is down to below 155.00 as speculation grows about a possible rate hike by the Bank of Japan. Meanwhile, President Trump’s visit to the US includes an interview with Fed’s Waller for a top position. Gold is trading around $4,300 as the market shows a cautious attitude toward the US Dollar and risk. However, geopolitical events and coming US inflation data have traders on alert for any changes. New Zealand’s current account deficit was larger than expected, indicating ongoing economic slowdown this year. The US Federal Reserve has kept its key interest rate at 4.75%, while the Reserve Bank of New Zealand has cut its rate to 4.50%. This growing difference suggests that it might be sensible to bet against the NZD/USD by buying put options in the weeks to come.

Market Sentiment and Speculation

The US dollar is weakening against many major currencies as markets expect significant Fed rate cuts in 2026. The November Consumer Price Index (CPI) report, which showed inflation dropping to 2.5%, supports this outlook, indicating that the high inflation from 2023-2024 is behind us. This positive sentiment strengthens positions favoring the euro and British pound against the dollar. Interest in the Japanese yen is also rising, with expectations that the Bank of Japan may end its negative interest rate policy in the new year. Japan’s core inflation has been above the 2% target for 18 months, reaching 2.8% in the latest data. This suggests increased volatility in the USD/JPY pair around the January BOJ meeting, making strategies like long straddles potentially fruitful. Gold continues to stay around the $4,300 level, reflecting worries about high sovereign debt and ongoing geopolitical issues. This high price is supported by record gold purchases by central banks in 2023 and 2024, a trend that is still ongoing this year. For traders with gold, the current stable prices offer a good opportunity to sell covered calls for extra income. Create your live VT Markets account and start trading now.

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