Following the Federal Reserve’s choice to keep interest rates the same, the US dollar is performing in mixed ways. Fed Chair Powell highlighted the importance of managing inflation and employment but refrained from making specific commitments about rates, pointing to upcoming jobs and inflation reports. Two members of the Fed disagreed with this approach and may share their views soon. President Trump criticized Powell’s leadership, blaming him for economic errors, and reinforced his support for tariffs, arguing they help the US. Treasury Secretary Bessent spoke about tough trade negotiations with China, expressing hope for a deal while criticizing India’s role in global trade. He is optimistic about the US economy, citing positive trends in capital expenditures and upcoming negotiations with Canada on aluminum tariffs.

Central Bank Updates

In central bank news, the Bank of Japan kept interest rates unchanged. Governor Ueda mentioned cautious steps towards meeting inflation goals. While noting improvements in wages, he emphasized the need for continuous increases, pointing out weak consumer spending. Ueda suggested gradual policy adjustments tied to inflation confidence and is watching currency movements but has no immediate plans. US stock markets gained significantly, propelled by strong earnings from Microsoft and Meta. The NASDAQ performed particularly well: – Dow: up 110 points – S&P: up 59.10 points – NASDAQ: up 311 points (1.5%) Notable stock movements: – Meta: up 11.62% – Microsoft: up 8.68% – Nvidia: up 2.25% – AMD: up 2.36% – Amazon: up ahead of its earnings report – SMCI: up 2.64% Yields in the US debt market have fallen: – 2-year note: 3.932% – 5-year yield: 3.939% – 10-year yield: 4.342% – 30-year yield: 4.869%

Market Trends and Predictions

The Federal Reserve is staying steady for now, but we will likely remain in a holding pattern until the next two inflation and jobs reports arrive before the September meeting. The Consumer Price Index (CPI) report from June 2025 was slightly cooler at 3.1%, though core inflation remains stubbornly above 3.5%, which explains the Fed’s caution. This situation makes options that wager on price swings, like straddles on major currency pairs, appealing around these key data release dates. The ongoing tension between the President and the Fed brings political risk, leading to unpredictable market moves. The August 12th China trade deadline is a significant upcoming event that could cause volatility. With US exports to China only recently recovering to pre-2022 levels, any new tariffs could disrupt supply chains and markets. As the Bank of Japan shows no urgency to raise interest rates, the yen is likely to remain weak against the dollar. We are closely monitoring the USD/JPY pair, which recently approached the 150 level—a psychological barrier not reached since late 2024. This clear difference in policy suggests that buying any major dips in this pair could be a smart strategy in the coming weeks. The stock market rally is notable but seems focused on a few large tech companies, which can signal instability. The CBOE Volatility Index (VIX), reflecting expected market volatility, dropped to 14 this week—too low considering upcoming risks. This environment may be ideal for buying protective puts on indices like the Nasdaq 100 or using call spreads to capture further tech gains while managing risk. Despite the Fed’s tough talk on inflation, US Treasury yields are slightly lower, signaling something important. Bond traders might be betting that future economic data will be weak enough to compel the Fed to change its stance, or they are buying bonds as a safe haven amid trade war concerns. This conflict between Fed guidance and bond market actions suggests we can expect choppy, uncertain trading. Create your live VT Markets account and start trading now.

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