TD Securities analysts expect the Federal Open Market Committee (FOMC) to keep interest rates steady without significant changes. They think Chair Powell will not pledge to cut rates immediately, though most officials still expect easing later this year. Recent data supports the FOMC’s cautious approach, making it harder to justify rate cuts. Analysts believe the upcoming FOMC meeting won’t have a big impact on the USD and recommend selling during USD rallies.

Uncertain Timing for Rate Cuts

Chair Powell is not ready to set a date for future cuts but has a preference for easing this year. He is focused on data, saying that risks are balanced for now. We expect the Federal Reserve to hold interest rates steady this week. Given recent data, the committee has a tougher case to make for immediate cuts. The December 2025 jobs report showed a solid but slowing gain of 160,000 jobs, indicating no immediate need to act. The next FOMC meeting is unlikely to significantly move the U.S. dollar, as the Chair will probably stick to his cautious stance. This steady outlook suggests that implied volatility in major currency pairs may stay low in the short term. A reasonable strategy is to sell short-dated option strangles on pairs like EUR/USD to collect premiums.

Plan for USD Rallies

We continue to favor selling into any notable U.S. dollar rallies. The market previously priced in aggressive cuts for 2025, only to be disappointed. Traders should view any dollar strength as a chance to take bearish positions, such as purchasing puts on the USD index or creating put spreads. While the Chair is unlikely to signal when rate cuts will happen, the committee is still leaning toward easing later this year. The latest CPI data for December 2025 showed inflation cooling to 3.2% year-over-year, backing this outlook. Traders should keep an eye on interest rate futures for the latter half of 2026 to prepare for this shift. The current situation indicates a balanced risk profile from the Fed’s point of view. This suggests near-term price movements will likely stay within established ranges. Therefore, using range-trading strategies like iron condors on currency ETFs may be suitable for the next few weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now