The US Dollar (USD) is holding steady but not at its highest point as it nears the Federal Reserve’s decision, with the DXY index around 99. The Australian Dollar is doing well thanks to better-than-expected Q3 CPI data, which lowers the chances of immediate rate cuts from the RBA. Meanwhile, the British Pound is under pressure due to weak sentiment ahead of the November budget. Global stocks are mixed, bonds are slightly weaker, and gold has climbed back above $4000. Additionally, LME copper hit a new record, partly due to optimism about US-China trade progress. The market is dealing with several factors but could stabilize before the Federal Reserve’s announcements. It’s expected that the Federal Open Market Committee (FOMC) will make a 25 basis point cut, bringing the Fed Funds target rate down to 4.00%. This dovish move might signal the end of the Fed’s quantitative tightening phase. More cuts are likely, with projections indicating the rate could fall to 3.00% by late 2026. This situation prompts questions about whether the USD will decline in the months ahead. Some disagreement among Fed governors leaves the door open for quicker easing next year. Chair Powell’s cautious approach could also affect the USD if he provides dovish guidance.

Market Focus on Federal Reserve Policy

Today, October 29, 2025, the market is closely watching the Federal Reserve’s decision. The anticipated 25 basis point cut to 4.00% is fully expected, with futures markets showing almost 100% probability for this outcome. However, the key focus will be on the forward guidance in the Fed’s statement rather than the cut itself. Currently, the US Dollar Index struggles to rise above 99, a significant drop from the over 105 highs seen in 2023. This change demonstrates the market’s adjustment to a new phase of monetary easing after years of stricter policies. If the central bank adopts a distinctly dovish tone today, it could significantly lower the dollar. Due to the uncertainty surrounding the Fed’s future decisions, we expect a short-term increase in currency volatility. The VIX index, around 17, suggests traders expect possible movement after the announcement. This environment is well-suited for options strategies like straddles on major currency pairs, which can benefit from large price swings in either direction. For traders anticipating the Fed will signal a quicker pace of cuts, it may be wise to prepare for a weaker dollar in the coming weeks. Core inflation has dropped to 2.8% this past quarter, down from 3.7% in late 2023, supporting the Fed’s reasons for a more dovish approach. Strategies could include buying puts on dollar-tracking ETFs or calls on currencies with stronger fundamentals, like the Australian dollar.

Long Term View on Dollar Trend

It’s also crucial to consider the long-term view, as markets are already factoring in rate drops to 3.00% by the end of 2026. This trend suggests that the dollar is likely to continue declining over the next year. Derivative traders may want to explore longer-dated options that expire in early 2026 to align with this gradual decline. Create your live VT Markets account and start trading now.

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