The US Dollar has weakened due to low short-term US interest rates and the Federal Reserve’s Beige Book hinting at potential rate cuts. The ongoing US government shutdown raises concerns about a lengthy closure, with betting markets suggesting it might extend into November.

US-China Relations

US-China relations are in the spotlight, especially with upcoming meetings between Presidents Trump and Xi at the APEC summit. China’s export limits on rare earths could disrupt global supply chains, impacting semiconductors and electric vehicles (EVs). G7 nations are preparing a statement against these controls, while the US may extend tariffs to reduce tensions. Positive news from France has lifted the euro, influencing the Dollar Index (DXY). A potential political agreement in Japan could affect the yen and support the DXY. Delayed US data may be overshadowed by speeches from Federal Reserve members, which could impact the dollar’s value. Despite these fluctuations, the DXY is expected to hover around 98.50. In the broader financial market, gold has surged past $4,250, while silver has dipped following previous gains amid trade tensions. Markets are also watching developments in the S&P 500, Dogecoin, and insights from top brokers for 2025. FXStreet advises investors to do their own research, as this information is not investment advice. With the Fed hinting at a rate cut at the end of the month, we are exploring options to express a bearish outlook on the dollar. The CME FedWatch Tool suggests over a 90% chance of a 25-basis-point cut, which indicates a dovish approach. Put options on the Dollar Index (DXY) expiring in November provide a direct method to bet on further weakness of the dollar.

Market Uncertainty

The upcoming US-China meeting at the end of October is the key event creating uncertainty, prompting us to prepare for significant market movement in either direction. We are purchasing volatility, akin to the VIX index spiking above 25 during trade disputes in 2018 and 2019. Options straddles on major equity indices expiring just after the November 10th tariff deadline may capture a breakout if negotiations falter. Given the geopolitical tensions and the trend toward safety, gold continues to show strength, already surpassing its prior inflation-adjusted highs from early 2020. We are increasing our long positions through call options on gold futures, as the dovish Fed and the rare earth supply chain threat provide strong support. Data from the World Gold Council reveals consistent inflows into gold-backed ETFs this quarter, reinforcing a bullish outlook. We are closely monitoring Japan’s political situation ahead of the expected vote on October 21st. A win for Sanae Takaichi could lead to further yen weakness, widening the interest rate gap that has driven USD/JPY higher in recent years. We are considering short-dated call options on USD/JPY to take advantage of a potential policy shift that could favor a weaker currency. Create your live VT Markets account and start trading now.

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