The US dollar has decreased in value against major currencies like the euro, yen, and pound. Today’s important data releases include US building permits, housing starts, and the University of Michigan’s preliminary sentiment index, which is expected to rise to 61.5 from last month’s 60.7. Fed official Waller supports a 25 basis points rate cut in July because of increasing risks and a weakening labor market. He warns that waiting too long may require stronger actions later. Waller anticipates GDP growth around 1% and believes the policy should aim for a neutral position, with the labor market being “on the edge.”

US Stocks Update

US stocks have shown slight increases, with the S&P and Nasdaq reaching record highs. The Dow is up by 71 points, the S&P has increased by 8.39 points, and the Nasdaq is up by 15.96 points. Despite positive earnings, Netflix shares have fallen by 2.15%. Key earnings reports today: Charles Schwab exceeded expectations with an EPS of $1.14 and revenue of $5.85 billion. American Express reported an EPS of $4.08, surpassing forecasts, while 3M posted an EPS of $2.16 but missed revenue targets. After the market closed, Netflix shared strong Q2 results with an EPS of $7.19, also beating future outlook estimates. US Treasury yields have dropped, with the 30-year yield falling below 5.00%. The current yields are 3.877% for the 2-year, 3.960% for the 5-year, 4.425% for the 10-year, and 4.985% for the 30-year. We see the current USD weakness as a trend that has more room to develop, especially after recent comments from a key Fed figure. The market is now anticipating an over 85% chance of a rate cut in July, according to the CME FedWatch Tool. This situation makes buying call options on pairs like EUR/USD and GBP/USD a promising strategy for the upcoming weeks.

Labor Market Outlook

The warning about the labor market being “on the edge” is an important signal. Recent data shows weekly jobless claims rising to 238,000, indicating a potential slowdown. A weaker job market supports the case for a pre-emptive rate cut, which may further pressure the dollar. While stock indices are reaching new heights, this creates a confusing picture that may suggest future volatility. The CBOE Volatility Index (VIX) is currently low at around 13, making options relatively inexpensive. We believe it’s wise to consider buying protective puts on major indices as a safeguard against any unexpected negative data. This “insurance cut” narrative reminds us of the mid-1990s when the central bank successfully managed a soft patch without causing a recession. That historical insight indicates a single rate cut could stabilize the markets for several meetings. This supports a short-term trading outlook rather than a long-term bearish shift. The bond market strongly reflects this outlook, with yields dropping across the board. The 30-year yield falling below 5.00% is a significant psychological and technical milestone. For traders, the movement in rates suggests that betting on continued or stable low yields through interest rate futures aligns with the Fed’s expected direction. Create your live VT Markets account and start trading now.

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