The US dollar is stable after small gains last week. Interactions with the Federal Reserve are causing some ups and downs, but the dollar remains strong against major currencies. The EUR/USD pair is staying below 1.1900, while GBP/USD has dropped below 1.3500, just under its 100-day moving average of 1.3479. Currently, sellers dominate these currency pairs, but the start of the week is quiet. Today’s currency movements are minor, with changes under 0.1%. Traders are evaluating the sentiment after the Fed’s meeting, focusing on how US economic data could impact the Fed’s outlook. The market predicts about 44 basis points in rate cuts by the end of the year. There’s limited softness in the dollar, with expectations for two rate cuts of 25 basis points each in October and December.

USD/JPY Movement

Watch the USD/JPY this week. The pair is consolidating and may break from its daily moving averages. It started the week just above 148.00 and is near the 200-day moving average, which could lead to more significant movements in the forex market. The market has already factored in around two rate cuts by year-end. This sets a high bar for any further dollar weakness. Therefore, upcoming US economic data will be crucial in confirming or challenging the Fed’s dovish outlook. Traders in derivatives should prepare for movements based on data surprises, rather than just shifts in Fed commentary. The recent Consumer Price Index report from August 2025 showed core inflation stubbornly at 3.6%. This creates a data-driven environment, complicating the expectation for aggressive rate cuts in October and December. This situation brings to mind late 2023 when traders betting on an early Federal Reserve shift were caught off guard by strong economic numbers.

Strategies for Traders

For those trading major pairs, the bias towards sellers in EUR/USD and GBP/USD suggests that buying put options may be a smart move. This approach allows traders to profit from potential dollar strength if upcoming jobs or retail sales data exceed expectations. These positions offer a way to engage with defined risks while betting that the market is overestimating the Fed’s easing. The consolidation in USD/JPY, especially around its 200-day moving average near 148.00, indicates pressure for a breakout. This setup is ideal for volatility trades, such as buying a strangle with expirations set after the next big US data release. This strategy could profit from a significant market movement in either direction, which seems likely given current conditions. Since interest rate expectations drive the market, consider options on SOFR futures. With nearly two cuts anticipated, a simple strategy might be to bet on fewer cuts than the market expects. This could involve selling out-of-the-money call options on futures contracts for the fourth quarter, betting that the Fed will need to keep rates higher for longer than anticipated. Create your live VT Markets account and start trading now.

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