Energy markets reacted sharply to lowered tensions between the US and Iran, leading to a 5% drop in Brent crude prices. This indicates a cautious atmosphere amid political changes and worries about policy shifts. **De-Dollarization Discussions** The Federal Reserve is not rushing to cut interest rates, but talks about de-dollarization are increasing. Recent US Treasury TIC data may show how foreign portfolios are adjusting, shedding light on these discussions. The Fed’s Beige Book reveals no immediate need for rate cuts, with stability or growth noted in eight out of twelve districts. There are no signs of a weakening labor market, which influences expectations about future rate cuts. The release of the Beige Book and Treasury data may impact decisions about foreign assets, particularly Chinese investments. If a second rate cut is removed from consideration this year, it could support the dollar. The 5% drop in Brent crude prices due to eased US-Iran tensions highlights the energy markets’ extreme sensitivity. New data from the Energy Information Administration showed an unexpected increase in U.S. crude inventories, contributing to the downward pressure. In this context, using options on energy ETFs is likely to be a key strategy in the upcoming weeks. **Federal Reserve Hold** Based on the latest Beige Book report, we expect the Federal Reserve to hold its rates steady, which should help support the dollar short-term. The CME FedWatch Tool now shows less than a 15% chance of a rate cut before the fourth quarter, a drop from the 40% chance just a month ago. As a result, derivative traders may seek opportunities in strategies that benefit from stable to higher interest rates, such as selling out-of-the-money calls on Treasury note futures. However, the longer-term trend of de-dollarization is gaining attention, especially amidst ongoing political pressure on the Fed. The latest Treasury International Capital (TIC) data indicates that foreign central banks were net sellers of $55 billion in Treasuries in November 2025, with China’s holdings falling to a new 14-year low. This information suggests that traders might consider longer-dated put options on the dollar as a hedge against this gradual trend. This scenario creates a conflict between the dollar’s short-term strength and its potential long-term weakness, similar to what we observed in the mid-2000s before a multi-year dollar decline. Traders should monitor for signs of divergence between short-term rate expectations and official sector sales of U.S. assets. This suggests a careful approach, potentially favoring shorter-term bullish dollar positions while using any gains to establish longer-term bearish hedges. Create your live VT Markets account and start trading now.

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