The US Dollar remains steady as traders wait for the Consumer Price Index (CPI) report. The Core CPI is expected to increase by 2.7% year-over-year in December, with a monthly rise of 0.3%. This information comes after mixed job market results and will impact the Federal Reserve’s interest rate decisions.

Currency Movements and Political Tensions

The Japanese Yen is losing value, especially against the US Dollar, which has reached its highest point since July 2024. This decline follows increased political tensions in Japan, causing the Yen to weaken against both the Euro and Swiss Franc. European currencies like EUR/USD and GBP/USD are trading cautiously as they watch for US data. US President Trump has announced a 25% tariff on countries that trade with Iran, affecting market feelings. His comments about acquiring Greenland are also raising geopolitical concerns. Gold has dropped below $4,600 but still has the potential for further gains. WTI crude oil has hit monthly highs due to worries about tensions in Iran affecting supply. In the currency market, the AUD/USD pair is benefiting from a stable US Dollar, supported by a positive outlook for the Reserve Bank of Australia’s policies. Understanding inflation and its effects on foreign exchange and commodities, such as gold, is essential. High inflation often attracts capital, which increases a currency’s value and can influence interest rate policies. Inflation pressures can also change how appealing assets like gold become, depending on interest rate changes.

Anticipating Market Volatility

The upcoming US CPI report is the key event to watch, with expectations for a 2.7% annual inflation rate. We should brace for a significant shift in the US Dollar, as inflation has decreased from around 3.5% in early 2025 to these more stable rates. Any changes from this prediction could lead to increased volatility, making options strategies like straddles on major currency pairs a smart choice to prepare for surprises. The Japanese Yen continues to trend downward, reaching a multi-year low against the dollar at 159.00 due to political issues. This ongoing weakness is likely to persist, especially since verbal interventions from officials in 2024 and 2025 failed to stop the decline. Buying call options on USD/JPY or put options on the Yen itself provides a direct way to take advantage of this trend in the coming weeks. Geopolitical risks are supporting oil prices, with WTI crude testing the $60 per barrel mark. The possibility of a 25% tariff on countries trading with Iran could disrupt the supply of over 3 million barrels per day, leading to significant potential for oil prices to rise. We can take advantage of this risk by purchasing out-of-the-money call options on oil futures, offering a low-cost way to bet on rising tensions. We should also keep an eye on increasing political pressure on the Federal Reserve, which may harm the bank’s credibility. Such concerns are generally positive for gold, which acts as a hedge against the devaluation of fiat currency. After the strong rally throughout 2025, this current dip below $4,600 an ounce could be a good entry point for long positions in the upcoming months. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now